| How can Long Run Economic Growth be obtained? | -This is when the LRAS Shifts to the Right. This is done when
-Innovation [New Technology]
-Investment on Modern Machinery [Better Capital Stock - Stuff that is needed to make Goods like Factories or Machines]
-Using GM Crops to increase Agriculture Output
-Spending on Training and Education to Better Human Capital
-Bigger Population Size via Immigration to increase the Nation's Workforce
-Having Stability in the Economy |
| How can Short Run Economic Growth be obtained?
-How Influences how large the Short Run can be? | -This is done when AD Shifts to the Right. This means Demand-Side Factors will be Involved, for example, lowering Interest Rates or Government Spending
-All down to how big the Multiplier Effect is.
-Increasing SRAS also creates Short Run, meaning Factors that reduce the Production Cost, like Oil Price Reduction or Wages |
| What is Economic Growth simply? | -Whhhen the Productive Potential for the Economy Increases |
| What does Short Run Economic Growth measure/mean?
-How can it improve? | -Short Run is the % Chance in Real GDP
-This is Actual Growth - Effect of Inflation has been Accounted for in the figure
-Caused by either Increases in AD or AS |
| What does Long Run Economic Growth measure/mean? | -Also known as Potential Growth, This is an Increase in Productive Potential, or Capacity, of the Economy
-Occurs usually when Quality or Quantity of FoP Increases, like better Machinery
-Long Run Growth is caused by AS Increasing |
| How can a PPF show Economic Growth
-Show both Types: Short and Long | -SHORT Term in the PPF is a Movement from Point A to Point B where the PPF still reamins the Same [No Movement]
-LONG Term in the PPF is when the Capacity of the Economy Increases - causing an Outward Shift to the PPF |
| What happens in a:
1. Boom
2.Recession
3. Recovery
[Note what happens to the 4 Macroeconomic Objectives] | 1. Boom is when the Economy grows Quickly which has Unemployment falling and Inflation Rising
2. Recession is when the Economy sufferss Negative Economic Growth - AD is falling leading to Unemployment rising and Inflation falling
3. Recovery sees the Economy going from Negatively Growing to Positvely growing - AD will be rising. |
| Where will the Long Run Growth be in the Economic Cycle? | -The Econoic Cycle is the cycle between Booms and Recessions. The Long Run Growth is the overall Increase in th Trend Rate Growth, which is basically the Direction of where GDP is heading as time Progresses. [Average Rate of Economic Growth] |
| What, and where, is a Negative Output Gap? | -This [Recesionary Gap] is the Difference between Actual Output [GDP] and Trend Output [Average Economic Growth] Acutal Output will be Below Trend Output
-Happens in a Rescession when the Economy is performing Poorly - Resources not used fully - like Labour [Unemploymnet]
-This also puts Downwards Pressure on Inflation [Demand is Falling and % Rates may be low] |
| What, and where, is a Positive Output Gap? | -This [Inflationary Gap] is the Difference between again Actual Output and Trend Output - Actual is ABOVE
-This happens during a Boom when the Economy is being Fully Uused, or Overused
-This also can lead to Inflation increasing [Demand is Increasing] |
| During a Recorvery, what happens with the Output Gap? | -Output Gap during recovery stages will begin to go from Negative [Recessoinary] to Positive [Inflationary] |
| How can the Output Gaps be shown on a PPF? | -Point inside the PPF reprsents a Negative Output Gap. This shows resources are not Fully used up
-Point On the PPF represents the Economy at Full Capacity - All reources are used
-Point Outsdie the PPF has the Economy making output Beyond its Potential - Perhaps workers are doing Awfully long hours or Machines overused. This is a Positive Output Gap. |
| How can an Output Gap be seen via AD and AS Curves | -Points on the LRAS show the Economy being at Full Capacity as its using all Resources
-Points to the Left of the LRAS show the Economy can Supply to a greater level. Negative Output Gap
-Point to the Right of the LRAS show the Economy is Overheating itself and a Positive Output Gap is Present |
| What are the Benefits to Economic Growth? | -Economic Growth wil Increse Labour Demand
-Firms will be Successful so Employees get Higher Wages and thus a Rise in Living Standards [Prices must be Stable]
-Firms also get more Profits as Consumers spend more from their more Income. Profits used to Invest, Hire and R&D Development causing LRAS to Shift
-Firms making more can possibly mean more Exports
-Government Tax Revenue, from more Income and Profits, will rise, and spend less on Unemployment Beneifts. Can help their Fisical Stance as a whole [Less need to Borrow]
-Evnironment may Benefit as Firms can Invest in Cleaner and Efficient Production Processes |
| What are the Drawbacks of Economic Growth? [Costs] | -Income Inequality can happen - Low Skilled Workers won’t get the Higher Wages that others are enjoying
-Stress, and Reduction in Productivty as Higher Wages comes with Higher Responsibility
-Demand Pull Inflation can occur - Demand outpaces Supply. Cost push Inflation also as Demand for Resources outpace Supply. [If AS Increases, its Useless]
-Balance of Payments may be a Deficit. Higher Incomes may mean more Imports bought, or Firms getting more Imports to meet their Production process
-Expansion of Firms that have Negative Externalities - Pollution, Congestion, Environment
-Limited Resources be used up, and the Environment may be subject to Exploitiation. |
| Why may a Recession be Bad News? | -This usally sees Firms closing down, and Unemployment Increasing drastically
-Firms may stop Hiring Employees as well, with the Youth mostly Hit
-Governments spend more [Beneifts or Projects] while the Taxation decreases [Unemployment and less Profits] can mean a Budget Deficit |
| Why may a Recession be Good News? | -Some Firms can profit of the Hardship Recessions bring. Discount Retilaers can Profit of Low Consumer Confidencde
-Firms may have to also deal with their Inefficienes to Survive. In the Good times they can get away with it. During a Recession costs have to tbe Cut. Therefore Firms can Profit from being more Efficient when the Recession ends |
