SR & LR ECONOMIC GROWTH

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  • SR & LR ECONOMIC GROWTH
    • SR Growth
      • Real GDP
        • Increase in volume goods + services that is produced in an economy over a period of time
        • Measure total output, expenditure or income of an economy after adusting for the changes in Price level
      • Actual annual percentage increase in an economy's output. (Actual Economic Growth)
      • Causes:
        • Change AD
          • Consumption - Increase GDP = Increase discretionary income = Increase consumer ability to buy goods & services
          • Investment - Decrease Corporation tax = Increase profits = Increase amount available spend = Increase incentive to invest (More Profitable)
          • Gov. Spending - Increase employment = decrease unemployment related benefits + Increase tax Rev. = Increase Gov. Spending
          • (X-M) - Decrease UK exchange rate = Decrease Curreny = Increase Exports + Decrease Imports = Trade Surplus
        • Changes SR AS
          • Change Costs of Production in SR
          • Change Quantity or Quality of economy's FOP in LR
          • Factors Affecting SRAS
            • Labour Costs - Increase labour costs = Decrease SRAS
            • Input Prices - Increase Input prices = Decrease SRAS
            • Taxes + Regulations = Increase taxes + Regulations = Increase Cost of Production = Decrease SRAS
      • Economic Cycle
        • CAUSES:
          • Multiplier Effect (Define from AS)
            • INJECTIONS
            • LEAKAGES
            • LIMITS:
              • Higher Savings
                • LOWER Multiplier
              • More spent on Imports
                • LOWER Multiplier
              • More Withdrawals
            • The Accelerator
              • Define: States the level of investment depends on the rate of change of GDP.
      • More Output or Goods & Services produced
      • LR Growth
        • Rate at which the economy's Potential Output could grow as a result of a change in the economy's capacity to produce goods + Services (Potential Economic Growth)
        • LRAS
          • Define: Shows Relationship between LOP & LR Supply in te LR. Shows Total productive capacity in economy.
          • INCREASE CAUSES:
            • Size of Population
            • Migration
            • labour Force Participation
            • Quality of labour
            • Productivity - Depends ON:
              • Quality of Labour Force
              • Quality & Quantity if Investment
            • Investment
              • Impact on Productive Capacity
      • OUTPUT GAPS
        • Difference between Actual & Potential Growth
        • Positive Output Gap - Actual > Potential
          • INFLATION - Prices rise because Scarce Resoruces
          • UN - EMPLOYMENT - Decrease unemployment because more goods being produced (Greater Capacity)
          • CURRENT BALANCE -  Deficit increase because more spent on imports
        • Negative Output Gap - Potential > Actual
          • INFLATION -  Prices fall because more resources available
          • UN - EMPLOYMENT - Increase Unemployment because fewer goods produced
          • CURRENT BALANCE - Deficit decrease because people have less money to spend on imports.

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