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Economic growth and economic cycle

definition = the increase in the economy's productive potential
1. measured using Real GDP or potential GDP
Output gap = difference between actual level of GDP and estimated trend value
1. + output gap = actual growth rate above trend
  1. more confidence in the economy
  2. high investment
  3. shortages of supply e.g. labour
2. - output gap = actual growth under trend
  1. downswing of the economy
  2. 2 successive quarters of negative growth
  3. falling demand
  4. closure of firms
  5. high unemployment
Factors which influence Growth rate
1. resources
2. investment in labour force
3. technology
4. capital goods
5. savings
government policies
1. promote education
2. promote mobility of factors of production
3. supply-side policies
  1. remove barriers to labour market flexibility
  2. cut taxes
  3. improve job information flows
4. promote R&D
5. promote savings
problems of economic growth
1. causes external costs e.g. Pollution
2. unfair distribution of income and wealth
3. may be unsustainable
reasons for the economic cycle
1. multiplier and accelerator effect
2. political
3. Inventory stock cycle

Economic growth and economic cycle

	Created by callum_j.smith over 9 years ago