Economic growth flashcards

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Define economic growth.

A sustained increase in real GDP (or real GDP per capita) over time — an increase in the volume of goods and services produced.

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Actual vs potential growth?

Actual growth: change in current output (Y). Potential growth: increase in full employment capacity (Yf) — shown by rightward LRAS shift.

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What causes LRAS to shift right?

More labour, capital investment, improved technology, better education/training, and efficient resource allocation.

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Real GDP growth rate formula?

((Real GDP₁ − Real GDP₀) ÷ Real GDP₀) × 100%

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Benefits of economic growth?

Higher living standards, more jobs, tax revenue for public services, and resources to reduce poverty.

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Costs of unsustainable growth?

Inflation (if AD outpaces LRAS), environmental degradation, resource depletion, and widening inequality.

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What is the difference between nominal GDP and real GDP?

Nominal GDP measures a country's output at current prices, so it includes inflation. Real GDP is adjusted for inflation, measuring the actual volume of goods and services produced.

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How is potential growth shown on a Long-Run Aggregate Supply (LRAS) diagram?

Potential growth is represented by a rightward shift of the vertical LRAS curve, indicating an increase in the economy's full-employment level of output.

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Define 'actual economic growth'.

The rate of increase in real GDP, representing the utilisation of unemployed or underemployed resources. On a PPC diagram, it's a movement from a point inside the curve towards the curve itself.

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State two sources of an increase in the quality of the labour force.

1. Improved education and vocational training, which increases skills and human capital. 2. Better healthcare, which leads to a healthier, more productive workforce.

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What is an 'output gap'?

An output gap is the difference between an economy's actual output and its potential output. A negative output gap means there is spare capacity and unemployment.