SR & LR ECONOMIC GROWTH
- Created by: Jack Cohen
- Created on: 15-04-14 22:17
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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
- Change AD
- Economic Cycle
- CAUSES:
- Multiplier Effect (Define from AS)
- INJECTIONS
- LEAKAGES
- LIMITS:
- Higher Savings
- LOWER Multiplier
- More spent on Imports
- LOWER Multiplier
- More Withdrawals
- Higher Savings
- The Accelerator
- Define: States the level of investment depends on the rate of change of GDP.
- Multiplier Effect (Define from AS)
- CAUSES:
- Real 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.
- SR Growth
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