trend growth rate Flashcards
(22 cards)
What is the trend growth rate?
The long-run, non-inflationary rate at which an economy’s productive capacity expands, typically measured as potential GDP growth.
What is the estimated trend growth rate for the UK pre-COVID?
Around 1.5%–2% per year.
What factors have slowed the UK’s trend growth rate in recent years?
COVID-19, Brexit uncertainty, and an ageing population.
Why is trend growth important?
It is crucial for fiscal planning, monetary policy, and estimating improvements in living standards.
How does productivity affect trend growth?
Higher productivity means more output per worker, increasing potential output and trend growth.
What is the UK’s productivity trend since 2008?
UK productivity has been flat, creating a ‘productivity puzzle’.
Why are productivity gains difficult to sustain?
They often require continuous innovation, skills training, and capital investment.
How does investment in capital affect trend growth?
More investment increases productive capacity, boosting potential output and long-run growth.
What has happened to UK business investment post-Brexit?
It has been weak and worsened further by the COVID-19 pandemic.
How does the labour market affect trend growth?
An increase in skilled labour (via education or immigration) raises productive capacity.
Why has UK labour supply tightened?
Due to an ageing population and reduced EU migration post-Brexit.
How does technological progress impact trend growth?
Innovation and new production methods improve efficiency, increasing potential output.
Give examples of UK government support for tech.
R&D, green technology, net zero initiatives.
What is a potential downside of technological progress?
It can lead to technological unemployment (e.g., firms replacing workers with AI).
How do supply-side policies affect trend growth?
They improve efficiency through deregulation, infrastructure, and education, increasing LRAS.
Give examples of UK supply-side policies aimed at growth.
HS2 (before cancellation), Net Zero Investment.
What are the limitations of supply-side policies?
They have long time lags, are costly, and may increase regional inequality.
How did Brexit affect the UK’s FDI?
The UK used to be a top recipient of FDI from the EU, but post-Brexit it struggles to attract investment.
What is one structural issue affecting UK growth?
Low growth of the labour force and poor productivity.
What are environmental costs of economic growth?
Growth may cause negative externalities like pollution, leading to market failure.
How can growth increase inequality?
Growth often concentrates in certain sectors or regions, widening income disparities.
What are asset bubbles and how do they relate to growth?
Periods of growth can inflate asset prices due to speculation, potentially leading to financial instability.
