topic 6 - economic growth Flashcards
(19 cards)
business cycle
a phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern.
recession
when GDP falls for two or more consecutive quarters
output gap
the difference between actual real GDP and potential real GDP
actual economic growth
also known as short run economic growth it is the rate of growth in real GDP and is caused by a rise in aggregate demand.
potential economic growth
also known as long run economic growth it is an expansion in the productive capacity of an economy and is caused by an increase in LRAS
negative output gap
when the actual GDP is lower than the potential GDP of an economy
positive output gap
when the actual level of GDP is higher than the potential GDP of an economy.
productivity
a measure of the efficiency of a factor of production
total factor productivity
the average productivity of all factors, measured as total output divided by total amount of inputs used
labour productivity
a measure of output per worker, or per hour worked.
capital productivity
a measure of the output per unit of capital
investment
the expenditure undertaken by firms to add to capital stock
depreciation
the fall in the value of physical capital equipment overtime as it is subject to wear and tear.
net investment
gross investment minus depreciation
human capital
the stock of skills and expertise that contribute to a workers’ productivity; it can be increased through education and training.
sustainable development
the development that meets the needs of the present without compromising the ability of future generations to meet their needs.
export led growth
a strategy for achieving rapid economic growth through promotion of export activity.
benefits of economic growth
- an increase in goods and services which become available for the country’s citizens to enjoy. This raises their material living standards.
- lower unemployment so reduced government spending on welfare, tax revenue also increases as more people have incomes, this means government needs to borrow less and as a result lowers the amount of debt they are in meaning less interest payments.
costs of economic growth
- depletion of non-renewable resources, this can negatively impact consumers as well as the environment as if, for example, resources of oil decrease, consequently the price of oil will increase and the producers will pass these extra costs of production onto the consumers.
- during economic growth the balance of payment deficit may worsen, this is because as an economy grows more jobs are created, meaning individuals spend more on imports (especially if there is a large MPM) this leads to a worsening on the balance of payments deficit.
