Economic performance Flashcards
Short Run Growth
Percentage increase in a country’s Real GDP measured annually which is caused by an increase in AD
Long Run Growth
Increase in productive capacity of an economy which is increase by AS (LRAS)
Negative Output Gap
Occurs when the actual level of output is below the potential level of output
Positive Output Gap
Occurs when the actual level of output is above the potential level of output
Characteristics of a BOOM
High rates of economic growth
Almost full employment
Near full capacity
Demand-pull inflation
Consumer and producer confidence
Government budgets improve (more tax)
Characteristics of a RECESSION
Negative economic growth
Spare capacity
Unemployment rise
Low inflation
Government budgets worsen
Reduction in consumer and producer confidence
Recession
Two consecutive quarters of negative economic growth
Asset Price Bubbles
The price of an asset is predicted to rise so demand rises past the intrinsic value so bubble bursts to ordinary value but causes panic between consumers
Herding
Reacting to the behaviours of economic agents instead of the market
Structural Unemployment
The decline and movement of certain industries offshore leave specialised/unskilled workers without jobs
Frictional Unemployment
The time between jobs when individuals are not in work
Seasonal Unemployment
There are more job opportunities/temporary employment in certain seasons
Cyclical Unemployment
Follows the economic cycle depending on if the economy booms or recesses
Real Wage Unemployment
When wages are above the equilibrium level so leads to excess supply of labour
Natural Rate of Unemployment
Theory developed by Milton Friedman and Edmund Phelps which is the difference between the quantity of people willing to have a job at the current wage rate and those who are willing and able to have a job
Inflation
The sustained rise in price level within an economy over time
Deflation
When inflation become negative
Disinflation
Inflation occurs but at a slower rate
Demand-pull inflation
When AD rises which causes price level to rise
Cost-push inflation
When SRAS falls which makes the price level rise
Quantity Theory of Money
There is inflation if money supply increases and vice versa
Fishers Equation of Exchange
MV = PQ
M = Money Supply
V = Velocity of Money
P = Average Price Level
Q = Quantity of goods and services
Assumed that V would be constant and Q would not vary greatly so M would directly affect P
Harrod-Domar model
Model of economic growth which explains an economy’s growth rate in terms of level of saving and of capital
Money Illusion
When individuals confuse nominal and real values when making economic decisions
