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Flashcards in Economic Growth and GDP Deck (44):
1

Why does the government take the standard definition of output based on a United Nations measure?

It allows output to be compared between countries and over time.

2

What three calculations does the government use to measure the value of actual output?

The value of total expenditure, total income or total output.

3

What does the expenditure method measure?

All of the expenditure within the economy in a given period.

4

What are the three domestic groups that buy goods and services?

Consumers, firms and the government.

5

What is total expenditure?

Total domestic expenditure added to the value of our exports.

6

What does the income method do?

It adds together all of the incomes earned within the economy over a given period of time (before taxes have been deducted).

7

What does the output method measure?

The value of goods and services produced by all industries over a given time period.

8

What is the problem with GDP measuring market prices such as indirect taxes?

They are not a part of the output of the economy so this measure inflates the actual value of national income.

9

What is a major problem with GDP?

It doesn't include the hidden economy e.g tax evasion or the illegalities of certain economic activity.

10

How is economic growth measured?

Using the rate of change of output or GDP.

11

When does a recession exist?

When real GDP falls (growth is negative) for two consecutive quarters.

12

What are the benefits of economic growth in terms of incomes and what does this lead to?

A rise in income and this leads to an rise in living standards.

13

Why might economic growth damage the environment?

More growth means that there is more output which means that there are more factory emissions, more output may require more land to be built on which leads to a loss of carbon sinks, incomes are increased which means there are more cars and more foreign holidays which leads to a greater use of fuel and growth leads to more consumption which leads to more waste.

14

What are the costs of economic growth?

Increased inequality, greater current account deficit as higher incomes lead to more imports and it leads to demand-pull inflation which means there is a lower purchasing power.

15

What are the benefits of economic growth?

Higher health, higher tax revenues which could reduce the budget deficit, lower spending on welfare, higher GDP means that there is more investment as there is a higher level of business confidence and lower poverty.

16

What is a cost of economic growth in terms of non-renewable resources?

In order to achieve economic growth, more of these resources will have to be used which are limited in supply, this means that economic growth is unsustainable and it will prevent economic growth in the future.

17

Why is it unlikely that economic growth will be prevented in the future?

The market mechanism ensures that the growing scarcity of a resource results in a price rise.

18

Why is it unlikely that economic growth will be prevented in the future?

The market mechanism ensures that the growing scarcity of a resource results in a price rise.

19

What is the effect of a price rise in non-renewable resources?

Demand and consumption fall, as there is now a financial incentive to conserve these resources, it becomes profitable for firms to explore new supplies for these resources and consumers will switch to substitute products while producers are encouraged to find new replacement products.

20

What is sustainable economic growth?

A rise in the economy's productive potential today which does not lead to a fall in the economy's productive potential for future generations.

21

What is the effect of economic growth increasing the levels of pollution in the atmosphere on workers?

It may lead to workers having illnesses which in the long-run would have negative consequences on the productivity of the workforce as life expectancies may fall and more people may end up in hospital.

22

What has happened in order to reduce the impact of economic growth on the environment?

High-income governments often use their increased tax revenues from economic growth to clean up the environment and there has been some international effort to safeguard the environment.

23

How does economic growth lead to a rise in inequality?

Those who own the means to production will try to keep more of the higher income to themselves in the form of higher profits and as land is a scarce resource, rents also rise in a economic boom which benefits landowners.

24

What types of unemployment may economic growth lead to and why?

Structural unemployment as those with non-transferable skills may find that their industries have moved out of the UK leaving them without a source of income and technological unemployment as production may become more automated.

25

What types of unemployment may economic growth lead to and why?

Structural unemployment as those with non-transferable skills may find that their industries have moved out of the UK leaving them without a source of income and technological unemployment as production may become more automated.

26

How does economic growth cause the current account to worsen?

If consumption increases then the UK will suck in more imports and there is less incentive for firms to export their goods as they can sell more easily in the domestic market.

27

How can economic growth cause the current account deficit to improve?

If economic growth is export-led and if economic growth is driven by a rise in the productive capacity as more services and goods can be made for export and there is a downward pressure on the price level so exports remain price-competitive in foreign markets.

28

What is the problem with actual economic growth happening too fast and being mainly driven by shifts in the AS curve?

The economy will soon get near its full employment level of output and the closer we get to this point, the more demand-driven growth will be inflationary.

29

What needs to happen for economic growth to be sustainable and why?

AS and AD need to shift right together which ensures that real output rises but with controlled increases in the price level.

30

What happens to GDP if AS shifts with a large negative output gap?

There will be no increase in GDP.

31

What happens to GDP if AD shifts with no output gap?

There will be no increase in GDP.

32

What is actual growth?

An increase in real GDP - caused by a shift in AD to the right.

33

What is potential growth?

An increase in the productive capacity of the economy which is caused by a shift of AS to the right.

34

What is potential growth?

An increase in the productive capacity of the economy which is caused by a shift of AS to the right.

35

How can potential growth be illustrated?

An outward shift of the PPF (capital goods and consumer goods should be on the axis), a rightwards shift in the AS curve and a rise in the long-term trend of real GDP.

36

What are on the axis of the graph that represents the business cycle?

GDP is on the y axis and time is on the x axis.

37

What does the actual GDP curve look like on the business cycle graph?

It oscillates.

38

What does the long-term trend look like on the business cycle graph?

It is a constant line with a straight gradient.

39

What happens during a boom in terms of inflation and unemployment?

Unemployment is low while inflation is high.

40

What happens during a slump in terms of inflation and unemployment?

Unemployment is high while inflation is low.

41

What is an economic slowdown?

A fall in the growth rate of GDP so the level of real GDP continues to rise but at a slower rate.

42

What is an output gap?

It is the difference between actual GDP and trend/potential GDP.

43

What is a positive output gap?

When actual GDP is larger than potential GDP.

44

What are the effects of a smaller output gap on inflationary pressures?

There are higher inflationary pressures.