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ECON 4: THE NATIONAL AND INTERNATIONAL ECONOMY

Economic growth is a long-term expansion of the productive potential of the economy.
Trend growth refers to the smooth path of long run national output
Actual growth is the percentage annual increase in national input: the rate of growth in actual
output.
Potential…

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Long Term Economic Growth.
This requires an increase in the long run aggregate supply (productive capacity) as well as AD
LRAS or potential growth can increase for the following reasons:
1. Increased capital. e.g. investment in new factories or investment in infrastructure, such as
roads and telephones.
2. Increase in…

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SUSTAINABLE ECONOMIC GROWTH is when the needs of today are met without risking the
ability to meet needs of future generations

DEMAND AND SUPPLY SIDE SHOCKS
A shock is an unexpected or unpredictable event that affects an economy e.g. natural disaster, the
weather, Wall Street Crash. Britain is susceptible to…

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-Useful in assessing the performance of different production sectors - Production units of a country
are broadly classified into primary, secondary and tertiary sectors. These sectors generate factor
incomes. The data on factor incomes generated by these sectors can be used to measure their
relative contributions to national income.
-Useful…

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to find employment in the labour market will shift the labour supply curve to the right thus narrowing
the gap e.g. back-to-work schemes, government subsidies




A government wanting to achieve a lower equilibrium rate of unemployment might do the following:
Reform the system of welfare benefits to reduce the "poverty…

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Short term fall in unemployment but at a cost of
higher inflation. Individuals bas wage negotiations on
expectations of higher inflation in the next period. If
higher wages are granted then firms costs rise-they
start to shed labour and unemployment returns to its
point on the LRPC. To counter rise…

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rate. But, if a country is in the Euro (e.g. Greece, Ireland and Spain) they can't devalue. Therefore, high
inflation can be very damaging as it leads to a decline in competitiveness.
Confusion and Uncertainty: When inflation is high people are uncertain what to spend their money
on. Also, when…

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Family Expenditure Survey does not include everybody. E.g pensioners are excluded. Pensioners
have different spending habits e.g. heating / bus travel account for a higher % of their expenditure.
Young people will benefit more from falling prices of mobile phones and electronic goods.
Therefore, the basket of goods may not…

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Fiscal policy involves the Government changing the levels of Taxation and Government spending in
order to influence Aggregate Demand (AD) and therefore the level of economic activity.
(AD is the total level of planned expenditure in an economy (AD = C+ I + G + X ­ M)
The purpose…

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4. Time Lags. If the govt plans to increase spending this can take along time to filter into the
economy and it may be too late. Spending plans are only set once a year. There is also a
delay in implementing any changes to spending patterns.
5. Budget Deficit Expansionary…

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Hey, do you mind me asking what grade you got for Economics?

LewisScott

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