Economic Growth Flashcards
Topic 3 (33 cards)
Define Economic Growth
Economic growth is an increase in the production of economic goods and services, compared from one period to another
Economic Growth Formula
Real GDP(current) minus Real GDP(previous) divided by Real GDP(previous)
Define Aggregate Demand
AD = C + I + G + (X-M)
Total value of expenditure in an economy in a given time period.
Define Aggregate Supply
Y = C + S + T
Total value of income in an economy in a given time period
Marginal Propensity to Consume
Proportion of each extra dollar of income that is spent
Marginal Propensity to Save
Proportion of each extra dollar of income that is saved
Multiplier Effect
MPS + MPC = 1
K = 1/MPS
K = 1/1-MPC
Aggregate Supply Limitations
- Capacity Constraint
- Skill Shortages
- Infrastructure Bottlenecks
EOEC on Living Standards
- Increased real GDP per capita
- Increased household disposal income
- Increased living standards
EOEC on Employment
- Economic growth = mroe jobs
- Changes type of work available
EOEC on Inflation
- Increase in price and increased wages
- Occurs when aggregate supply can’t keep up with aggregate demand
EOEC on External Stability
- High APC = High CAD
- BOP = speed limit on economic growth
EOEC on Income Distribution
-Growth can benefit specific groups such as investors and shareholders
EOEC on Environment
- Increased pollution
- Increased environmental exploitation
- Governments try to pursue ESD
Policies to Sustain Economic Growth
Macro - Fiscal + Monetary IN TANDEM
Micro - Structural factors - time lag
Labour Force Participation Rate
Labour Force divided by Working Age Population
Unemployment Rate
Total of persons unemployed divided by Total labour force
Types of Employment/Brief Description
Structural - Technology/Redundancy Cyclical - Economic Frictional - Movement between jobs Seasonal - Time Hidden - discouraged job seekers Underemployment/Hidden - working less than they would want Hardcore - Crime/Skill loss
Non-accelerating inflation rate of Unemployment
- Also known as natural rate of unemployment
- When economic is at full employment
Economic Costs of Unemployment
- Resource not being fully utilised
- Lower Living standards
- Lower wage growth
Social Costs of Unemployment
- Increased inequality
- Tension between social classes
- Crime
- Unemployment in particular groups
Policy to Reduce Unemployment
Macro - reduces long-term/cyclical
Micro - Tariff removal, privatisation, tax reform, deregulation, reform, national competition policy
Inflation Rate Formula
CPI(current) - CPI(previous)/CPI(previous)
Preferred method of measuring Inflation for RBA
Underlying Inflation –> long term, removing one-off fluctuations
