Economic Growth Flashcards
(20 cards)
Define short run economic growth
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Define long run economic growth
The trend rate of growth over a long period of time which grew better potential productively
When the long run aggregate supply curve shifted to the right the ppf curve moves outward
How is economic growth measured?
Measure GDP
Measure level of unemployment
Inflation
What can cause short run economic growth?
Interest rates set by the central bank - monetary policy
Fiscal policy - government spending and taxation
Exchange rates appreciation or depreciation
Trading conditions
Confidence of businesses and households
What can cause long run economic growth ?
Capital investment Factor productivity Growth of the Labour supply Research and development Innovation
What are the benefits of economic growth?
Higher standards of living
Employment effects - less unemployment
Accelerator effect - investment for the future
What is a positive output gap?
Actual GDP is greater than potential GDP - this is a good thing although could cause inflationary pressures.
Making more than expected
What is a negative output gap?
The economy is making less than it could be
Not using the scarce resources to maximise productive potential
What does the term recessionary gap mean?
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Explain how growth may not be balanced
Some industries grow at faster rates than others - agriculture is way bigger than industrial work
Could be imbalanced because of demographics
Explain how growth may not be sustainable
If changes in aggregate demand are not met by changes in aggregate supply the economy is debt fuelled?
Growth may be based on things that are beneficial to the economy now but won’t be in the future - example selling generators isn’t environmentally sustainable
What are the key economic institutions which help facilitate economic activity and growth?
Governments Legal systems Educational institutions Banking systems Health institutions
How can you attract economic growth from abroad
Low taxation Special economic zones Tariffs Trade and investment agreements Flexible Labour markers High quality infrastructure Availability of cheap Labour No war, politically stable
What problems can growth cause ?
Risks of higher inflation Risks of higher interest rates Inequalities of income, and wealth Negative externalities Trade imbalance Depletion natural resources
What can restrict growth?
Bad infrastructure Primary export dependency Too much government taxation Corruption Lack of incentives Natural capital depletion/weakness High levels of inequality
Give an example of a demand side shock
Olympics
World Cup
Give an example of a supply side shock
Bad weather - unusual weather conditions
Large exchange rate drops
Drop in demand for basic commodities like oil
Define multiplier
A small change causing a big overall difference
An initial injection into the economy (eg exports)then the final increase in aggregate demand and real GDP will be greater
Define accelerator
Investments , more demand today, more capacity tomorrow
Define recession
A period of at least six months when an economy suffers a fall in output or a broadly based contraction in output, employment , investment and confidence
