economic performance

• What is short-run economic growth?

  Increase in real GDP within existing capacity
• What drives short-run economic growth?

  Changes in aggregate demand or supply
• Does short-run economic growth represent an increase in potential output?

  No, it does not represent potential output increase
• What is long-run economic growth?

  Sustained increase in productive capacity
• How is long-run economic growth represented graphically?

  By a rightward shift in the LRAS curve
• What factors drive long-run economic growth?

  Technological progress, capital accumulation, labor growth
• What is one factor that contributes to long-run economic growth?

  Technological progress
• What is another factor that contributes to long-run economic growth?

  Capital accumulation
• What is a third factor that contributes to long-run economic growth?

  Labor force growth
• What is an additional factor that contributes to long-run economic growth?

  Institutional improvements
• What are the key differences between short-run and long-run economic growth?

  • Short-run: Increase in real GDP, driven by AD/AS changes
  • Long-run: Sustained increase in productive capacity, driven by technological progress, capital accumulation, labor growth, and institutional improvements
• What are the demand-side determinants of short-run economic growth?

  Consumption, Investment, Government Spending, Net Exports
• How do increases in consumer confidence affect consumption?

  They boost consumption, shifting AD right
• What factors drive investment in the economy?

  Higher business confidence, favorable interest rates, incentives
• What role does government spending play in short-run economic growth?

  It increases AD through fiscal stimulus
• How does a depreciation of currency affect net exports?

  It boosts exports and reduces imports
• What are the supply-side determinants of short-run economic growth?

  Wages/Input Costs, Productivity, Resource Availability
• How do reductions in wages or input costs affect production costs?

  They lower production costs, increasing output willingness
• What impact does increased productivity have on short-run aggregate supply (SRAS)?

  It shifts SRAS to the right
• How does resource availability influence output in the economy?

  More resources allow for increased output
• What are the key factors that influence short-run economic growth?

  • Demand-Side Determinants:
  • Consumption (C)
  • Investment (I)
  • Government Spending (G)
  • Net Exports (X-M)
  • Supply-Side Determinants:
  • Wages/Input Costs
  • Productivity
  • Resource Availability
• Determinants of Long-Run Economic Growth

  • Technological Progress: Leads to new processes and products, improving productivity and shifting LRAS right.
  • Capital Accumulation: Investment in physical and human capital increases productive capacity.
  • Labor Force Growth: A growing or more skilled workforce contributes to higher production capacity.
  • Globalization: Integration into global markets allows access to technology, capital, and larger markets, driving growth.
  • Institutional Improvements: Legal systems, financial markets, and economic policies that support business activity and efficiency.
• What is a benefit of economic growth related to living standards?

  Higher Standard of Living
• How does economic growth affect public services?

  It allows for greater investment through tax revenue
• What is one way economic growth reduces poverty?

  By providing jobs and income opportunities
• What does economic growth do to national income?

  Increases total national income
• What is a cost of economic growth related to income distribution?

  Income Inequality
• How can economic growth lead to environmental issues?

  It can cause pollution and resource overuse
• What economic condition can result from rapid growth?

  Overheating and Inflation
• What urban issue can arise from economic growth?

  Urban sprawl and infrastructure pressure
• The Economic Cycle


  • Expansion: When real GDP grows, unemployment falls, and confidence increases.
  • Peak: The economy reaches its highest point. Growth slows, and inflationary pressures increase.
  • Recession: GDP falls, unemployment rises, and economic activity contracts.
  • Trough: The economy stabilizes at its lowest point, before recovering with expansion.
• Output Gaps


  • Positive Output Gap: Occurs when real GDP is above potential GDP, leading to inflationary pressures as demand exceeds supply.
  • Negative Output Gap: Occurs when real GDP is below potential GDP, indicating underutilization of resources, particularly labor, leading to higher unemployment.
• Causes of Changes in the Economic Cycle

  • Global Shocks: External factors, such as oil price hikes or global recessions, can trigger economic downturns.
  • Domestic Shocks: Fiscal or monetary policies, like changes in government spending or interest rates, affect the cycle.
  • Confidence Shocks: A sudden change in consumer or business confidence can alter the cycle, causing a rapid decline in spending or investment.
• Key Measures of Unemployment in the UK

  • Claimant Count: Number of people receiving unemployment benefits (Jobseeker’s Allowance).
  • Labour Force Survey (LFS): Broader measure of unemployment, including those actively seeking work but not claiming benefits.
• What is voluntary unemployment?

  People choose not to work at current wage
• Why do people experience voluntary unemployment?

  Due to preference for leisure or better job offers
• What defines involuntary unemployment?

  People willing to work but cannot find jobs
• What causes seasonal unemployment?

  Fluctuations in demand for jobs throughout the year
• What is an example of seasonal unemployment?

  Jobs in tourism or agriculture
• What is frictional unemployment?

  Short-term unemployment during job transitions