A2 Economics Macro- Economic Growth
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- Created on: 28-02-17 09:29
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- A2 Macro Economics
- Economic growth
- Long run- shift in the PPF increasing total output within the economy
- Short run- increase in output due to making use of spare capacity in the economy and the unemployed
- An increase in the potential output an economy can produce
- Caused by an increase in labour productivity, investment, sufficient aggregate demand and technical progressions
- Total Factor Productivity is when all factors of production are changed to access in order to show long run output
- Recession is defined as negative growth for 6 or more months
- Positive output gap is when the actual growth rate is higher than trend rate.
- Supply side shocks such as war and changes to minimum wage cause sudden changes to AS
- Caused by an increase in labour productivity, investment, sufficient aggregate demand and technical progressions
- GNI- the sum of value added by all producers who are residents in a nation, plus any product taxes (minus subsidies) not included in output, plus income received from abroad such as employee compensation and property income.
- Money- signalling, incentive and allocation functions
- Most governments aim for a sustainable rate of growth that increases output without depleting the natural environment stick
- Positives
- Better standards of living
- Civilized communities that take action for th envirment
- development of environmentally friendly technologies
- route out of poverty
- tax revenue that can then provide further economic welfare
- Posative multiplier of more investment and tech futher increasing
- Negatives
- Uses up a lot of finite resources
- Earth being poluted and eventually reaching a point where it cant recover
- Destroys cultures and widens the inequality gap globally
- loss of agricultural land due to urban sprawl
- Countires can go into a spiral on negative growth becasue other countires grow alot faaster
- Aggregate demand
- Total planned spending within an economy on goods and service over a set period of time
- Consumption + Investment + Government spending + (x-m)
- in the long run, unemplyment and national output above natural level of output as it causes inflation and, in the long run, will have little effect so expansionary fiscal and monetary policies wont be used
- supply side policies are used instead- lowering corporation tax, providing subsidies, increasing labour mobility, and increasing training
- National Income Modifier
- Measures the relationship between and change in a component of aggregate demand that cause a change in the equilibrium national income
- Consumption multiplier, investment multiplier, export multiplier.
- Of the initial investment, the MPC is 0.9 meaning 90p of every pound earned is spent. this create a multiplier
- Too much demand within an economy can cause inflation and worsening of the balance of payments as people turn to importws
- Free market economist argue that govenment spending causes crowding out of private sector investment
- Aggregate supply
- An economy can operate outside its PPF in the short run as SRAS may shift outside of the LRAS curve.
- Natural Level Of Output- the long run equilibrium level of potential output
- Economic growth
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