Chapter 12 Business cycles and economic growth Part 3

Flashcards about business cycles and economic growth.

What is economic growth?

Increase in Real GDP.

What has been the average annual growth rate of Australia's Real GDP since 1959-60?

About 3.5%.

What variables are the causes of business cycles?

Changes in C, I, G, and (X–M) [GDP = C + I + G + (X–M)].

What is the GDP gap?

The difference between GDP at full employment (maximum potential) and GDP at the actual unemployment rate. GDP gap = potential real GDP – actual real GDP.

Define potential real GDP.

Full employment GDP where unemployment equals the natural rate of unemployment.

During which phase of the economic cycle does actual GDP exceed potential GDP?

Expansion.

During a contraction, what is the relationship between actual GDP and potential GDP?

Actual GDP is less than potential GDP.

What does 'full employment' mean in the context of the GDP gap?

It does not literally mean an unemployment rate of zero due to changing tastes and technology.

What is the formula for calculating the GDP Gap?

GDP Gap = Potential Real GDP – Actual Real GDP