Economic Performance Flashcards
(35 cards)
Economic growth definition
Economic growth is a rise in the real value of goods and services produced in an economy over a period of time.
What is short run economic growth measured by and what is it caused by?
Measured by the annual % change in real GDP. Caused by an increase in aggregate demand.
What does long run economic growth increase?
Increases the productive capacity of the economy
What are causes of long run economic growth?
More quantity or factors of production ( e.g immigration )
More capital investment ( e.g due to lower cooperation tax )
Better quality of factors ( e.g training, productivity improvements.
What are the benefits of economic growth?
Higher incomes = better living standards
Lower unemployment
Cheaper goods / services
Better access to healthcare and education
More tax revenue ( fiscal dividend )
Increased international competitiveness
What are the costs of economic growth?
Environmental damage ( pollution, externalities)
Unsustainable resource use
Widening inequality ( urban vs rural , skilled vs unskilled)
Inflation from demand pressures on limited resources
Economic cycle definition
The economic cycle is the natural fluctuation of the economy between recovery and recession over time.
Draw the economic cycle diagram or imagine it.
Curved line going up and down through the trend line
What is a recession? And what happens in it?
Defined as two or more consecutive quarters of negative real gdp growth
Prices of labour and land fall
Some entrepreneurs begin to invest again, starting recovery
What happens in a recovery in the economy?
Investment rises so real gdp grows
Unemployment falls, income rises so consumption increases
House and share prices rise
Confidence grows.
Investment and hiring decline
Cycle repeats
What happens in a boom in the economy?
Wages rise, overtime work increases
Migration may rise for jobs
High demand for luxury goods and imports
Tax revenue increases, fiscal deficit shrinks
Firms struggle to keep up with demand
What happens in stagnation phase in the economy
Economy starts to overheat
Asset prices ( e.g housing, shares ) rise to high > speculative bubbles
Firms delay investment, workers hours reduced
Uncertainty spreads
What happens in the return to recession phases in the economy?
Prices fall > profits and demand collapse
Unemployment rises, welfare spending increases
Consumers save more, spending drops
Bankruptcies harm confidence.
What can cause a recession
Global financial crises e.g 2008
Recession in key trading partners ( e.g eu downturn > U.K. export drop)
Bad harvest in agricultural economies.
Definition of an output gap
An output gap is the difference between actual and potential real gdp growth Prices
What is a negative output gap?
Actual gdp is less than potential gdp
Spare capacity goes to high unemployment
Low inflationary pressure ( demand - deficit unemployment )
What is a positive output gap?
Actual GDP is greater than potential GDP
economy over producing temporarily
Over used workers and machines means inflation rises
Definition of unemployment
Unemployment is when people are seeking work but are currently without a job.
What are the different measures of unemployment?
Claimant count: people receiving job seekers allowance
ILO measure: people actively seeking work for the past 4 weeks and able to start in the next 2 weeks
Is unpaid work unemployment?
You are still employed even if unpaid ( e.g charity work ) or part time
What is inactivity in work and is it classed as unemployment
Inactivity is not actively seeking work ( e.g students, stay at home parents, long term ill) not classed as unemployed.
What is the impact of unemployment on workers?
Lower income
Poverty and debt
Depressions and health issues
Poor living standards
What is the impact of unemployment on the economy?
Higher crime ( externalities )
Larger fiscal deficit ( less tax more welfare )
Hysteresis > long run supply falls
Brain drain ( workers move abroad )
Rising inequality.
