8.1 Economic growth and the economic cycle Flashcards Preview

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Flashcards in 8.1 Economic growth and the economic cycle Deck (21)
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1
Q

What is short-run economic growth?

A

The actual annual percentage change in real national output

2
Q

What is long-run economic growth?

A

An increase in the potential productive capacity of the economy

3
Q

How is short-run economic growth measured?

A

The annual percentage change in Real National Output

Or

Gross Domestic Product (GDP)

4
Q

How is long-run economic growth measured?

A

The maximum potential output of the economy using all factor resources as illustrated on the Production Possibility Frontier.

5
Q

In the short-run what is the primary cause of economic growth?

A

An increase in the components of AD

AD = C + I + G + (X-M)

6
Q

In the long-run what is the primary cause of economic growth?

A

An increase in the productive capacity of the economy. This is a change in any of the factors of production (land, labour, capital, enterprise).

7
Q

How is short-run economic growth demonstrated?

A

Using a SRAS-AD diagram

8
Q

How is long-run economic growth demonstarted?

A

PPF/PPC’s

or

the classical model

9
Q

What’s the definition of the economic cycle?

A

Variations in the level of productive capacity of an economy over time

10
Q

What is the definition of gross domestic product (GDP)?

A

The value of goods and services produced in the economy over a period of time

11
Q

What factors can cause a boom in the economic cycle? (7)

A

High rate of economic growth

High demand

Low unemployment

Inflationary pressure

Labour skills shortages

High confidence in the economy

Capital Investment is high

12
Q

What factors can cause a recession in the economic cycle? (5)

A

Demand falls

Unemployment begins to rise

Some firms will go out of business

Confidence in the economy is low and most firms will

reduce investment

13
Q

What is a boom on the economic cycle?

A

A boom is a period of high levels of economic activity.

14
Q

What is a recession on the economic cycle?

A

The rate of economic growth starts to fall in a downturn

If real GDP falls for 6 months then this is known as a recession

15
Q

What is a slump on the economic cycle?

A

The bottom of the business cycle which represents a period of serious economic decline

16
Q

What factors can cause a slump on the economic cycle? (5)

A

Low or negative growth

Demand and inflation are low

Unemployment is high

Confidence in the economy is low

High rate of bankruptcy

17
Q

What is a recovery on the economic cycle?

A

When there are signs that economic growth is starting to rise, often referred to as the ‘green shoots of recovery’

18
Q

What factors characterise a recovery on the economic cycle? (6)

A

Economic growth starts to rise

Demand increases

Unemployment falls

Inflation starts to rise

Confidence in the economy increases

Capital Investment increases

19
Q

What is the output gap? (positive or negative)

A

The difference between actual and potential GDP

20
Q

What is a demand side shock?

A

This refers to unexpected changes in the economy that directly impact on aggregate demand

21
Q

What is supply side shock?

A

This refers to unexpected changes in the economy that directly impact on aggregate supply

This will often refer to the size and productivity of the workforce and firms’ ability to produce goods and services