Economic Growth

What is economic growth?

Increase in the productive capacity of an economy

What are the two main measures of national income?

• Gross Domestic Product (GDP) - total market value of all good + services produced in the country

• Gross national Income (GNI) - GDP + income paid into the country

What is the government’s target for economic growth?

2-3% per year

What is the trade/business cycle?

1. Boom

2. Slowdown

3. Recession

4. Recovery

When did the Great Depression happen + a cause?

• 1930s

• Cause - Wall Street crash in 1929 → decreased investment + spending

What was an impact of the Great Depression + solution?

• Impact - 25% unemployment in US

• Solution - Roosevelt’s new deal → gov spending on infrastructure

When did the Global Financial Criss happen + a cause?

• 2009

• Cause - sub-prime lending by banks → risky mortgages lended

What was an impact of the Global Financial Criss + solution?

• Impact - recession → UK economy shrunk by 6%

• Solution → IR cut to 0.5%

How does economic growth occur?

Increase in the quantity/quality of the factors of production

What is a production possibility frontier?

Shows the maximum output of an economy

What is it called if the production possibility frontier shifts outwards?

Economic growth

What is it called if we move from inside the production possibility frontier to its edge?

Economic recovery

What are the two types of -led growths?

• Export-led growth

• Consumer-led growth

What is the output gap?

Difference between the potential GDP and actual GDP

What is the output gap on the LRAS diagramns?

• Keynesian view → difference between where AD intersects LRAS + maximum output (vertical bit)

• Classical view → difference between where two AD curves intersect the LRAS

What are two problems of measuring the output gap?

• Not all unemployed resources would have the same impact if employed

• Diffuclt to measure potential in an economy - mainly for services

What is productivity?

Measure of the efficient use of the factors of production

What are four factors that can cause the productivity gap?

Differences in:

• Tech

• Investment

• Education + skills

• Motivation

What is the difference between economic growth + development?

• Economic growth → just economic factors

• Economic development → economic + social factors

What is purchasing power parity + why is it used?

• Purchasing power parity - exchange rate between two currencies that find the relative purchasing power of those currencies to each other

• Use - compare differences in living standards

e.g If a "basket" costs £50 in the UK and $100 in the USA, the PPP exchange rate would be £1=$2. If the actual market exchange rate is different (e.g., £1=$1.30), it suggests that the cost of living is significantly higher in the USA (i.e would only get $65 from the £50 so couldn’t buy the basket in the USA)

What are four problems of using GDP as a standard of living indicator?

• No QoL indicators included (e.g wellbeing)

• Inequality

• Informal economy not included (e.g volunteering)