Econ CH11

% Change in real GDP

Short-term growth on graph

Increases in AD or SRAS

Long-term growth

Increases in LRAS or AS

Achieving full potential in long-term economic growth

PPC in different growth

Economic growth

increase in real GDP or real quantity of goods and services produced over a period of time

Increases in Real GDP occurs when…

increases in AD (Short-term growth), increase in SRAS (Short-term growth), increase in LRAS (long-term growth)

Factors that increase production possibilities

increase in quantity of resources, improvements of the quality of resources (ie: more educated labor)

Physical capital

capital that results from investments or spending to produce machines, equipment, roads, etc.

Human capital

the skills, abilities, knowledge, and level of health in workers

Natural capital

includes everything that traditionally within ‘land’ or ‘natural resources’

Living standards

levels of income, wealth, and consumption of goods and services, including health care and education

Factors that allow economic growths positive effects on standard of living

distribution of income, household spending, share of income controlled by women, government spending on merit goods, NGO contributions

Government debt

amount of money that a government owes to lenders outside of the government itself

Budget deficit

if expenditures are larger than tax revenue

Budget surplus

if expenditures are smaller than tax revenue

Sustainable debt

level of debt where the borrowing government has enough revenues to meet its debt obligations without accumulating arrears

Debt servicing

payments that must be made in order to repay the amount of the loan plus interest payments

Demand-pull inflation

inflation caused by increases in AD

Cost-push inflation

inflation caused by decreases in SRAS due to factors such as high price of factors of production