ECONOMICS TOPIC 3 ECONOMIC GROWTH AQA A LEVEL

what is short run growth?

Short run growth is the percentage increase in a country's real GDP and it is usually measured annually. It is caused by increases in AD

what is long run growth ?

Long run economic growth occurs when the productive capacity of the economy is increasing and it refers to the trend rate of growth of real national output in an economy over time. It is caused by increases in AS.what

whats a negative output?

A negative output gap occurs when the actual level of output is less than the potential level of output.

whats the effect of a negative output?

This puts downward pressure on inflation. It usually means there is the unemployment of resources in an economy, so labour and capital are not used to their full productive potential. This means there is a lot of spare capacity in the economy.

what is a positive output ?

A positive output gap occurs when the actual level of output is greater than the potential level of output.

what is the effect of a positive output ?

It could be due to resources being used beyond the normal capacity, such as if labour works overtime. If productivity is growing, the output gap becomes positive. It puts upwards pressure on inflation. Countries, such as China and India, which have high rates of inflation due to fast and increasing demand, are associated with positive output gaps.

what are the characteristics of a boom?

1)High rates of economic growth

2) Near full capacity or positive output gaps

3) (Near) full employment

4) Demand-pull inflation

5) Consumers and firms have a lot of confidence, which leads to high rates of investment

6) Government budgets improve due to higher tax revenues and less spending on welfare payments

characteristics of a recession?

1)Negative economic growth

2) Lots of spare capacity and negative output gaps

3) Demand-deficient unemployment

4) Low inflation rates

5)Government budgets worsen due to more spending on welfare payments and lower tax revenues

6)Less confidence amongst consumers and firms, which leads to less spending and investment

what are the costs of economic growth for consumers? ( INCOMES)

Economic growth does not benefit everyone equally. Those on low and fixed incomes might feel worse off if there is high inflation and inequality could increase.

what are the benefits of economic growth for consumers ? (INCOMES)

The average consumer income increases as more people are in employment and wages increase.

what are the costs of economic growth for consumers? ( DEMAND PULL INFLATION)

There is likely to be higher demand-pull inflation, due to higher levels of consumer spending.

what are the benefits of economic growth for consumers? ( CONFIDENCE)

Consumers feel more confident in the economy, which increases consumption and leads to higher living standards.

What are the costs of economic growth for consumers ?(LAW OF DIMINISHING RETURNS)

The benefits of more consumption might not last after the first few units, due to the law of diminishing returns, which states that the utility consumers derive from consuming a good diminishes as more of the good is consumed.

What are the costs of economic growth for firms ? (INFLATION)

Firms could face more menu costs as a result of higher inflation. This means they have to keep changing their prices to meet inflation.

what are the benefits of economic growth for firms? (INVESTMENT)

Firms might make more profits, which might in turn increase investment. This is also driven by higher levels of business confidence.

what are the benefits of economic growth for firms? (TECHNOLOGY)

Higher levels of investment could develop new technologies to improve productivity and lower average costs in the long run.

what are the benefits of economic growth for firms? (EOS)

As firms grow, they can take advantages of the benefits of economies of scale.

what are the benefits of economic growth for firms? (EXPORTS)

If there is more economic growth in export markets, firms might face more competition, which will make them more productive and efficient, but it will also give them more sales opportunities.

what are the cost of economic growth for governments?(SPENDING)

Governments might increase their spending on healthcare if the consumption of demerit goods increases.

what are the benefit of economic growth for governments?(BUDGET)

The government budget might improve, since fewer people require welfare payments and more people will be paying tax.