2.5 Economic Growth

• Actual Growth


  A rise in real GDP also known as short-run growth
• Long-run Growth

  The trend growth rate –mainly determined by changes in the stock of available factor inputs and also improvements in productivity
• Output Measure GDP

  Value of the goods and services produced by all sectors of the economy
• Potential Growth


  This is a rise in the productive potential or the capacity of the economy
• Production


  Value of goods and services measured by GDP
• Productive Potential

  Productive capacity of the economy –boosted by high quality capital investment.
• Seasonal Adjustment


  Estimates in which seasonal influences that may distort the data have been removed
• Sustainable Growth


  Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs.
• Exogenous Shock


  An unexpected event beyond the control of the country’s officials that has a large negative impact on its economy.
• Negative Output Gap


  An economy has a large amount of spare capacity or actual GDP is below the estimated potential GDP.
• Output Gap


  Difference between actual and potential national output
• Positive Output Gap


  An economy is working beyond its normal productive capacity eg. overtime work and machines running long hours.
• Boom


  A period of rapid economic expansion resulting in higher GDP, lower unemployment, rising inflation and rising asset prices.
• Depression

  A severe recession which may become a prolonged downturn where a nation’s real GDP falls by at least 10%
• Double Dip Recession


  When an economy goes into recession twice without a full recovery in between.
• Expectations


  How we expect the future to unfold
• Forecast


  A prediction made about the likely future performance of an economy.
• Hysteresis


  A sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy
• Peak


  The high point of the economic cycle beyond which a recession starts.
• Recession

  2 consecutive quarters of a contraction in output, employment, investment and confidence or decline in real GDP
• Recovery

  A phase of the economic cycle, after a recession/depression, during which real GDP starts to increase and unemployment begins to fall.
• Slowdown/ Soft Landing


  A fall in the rate of growth of an economy but not a full-scale recession.
• Slump

  A sustained decrease in real GDP and a persistent rise in unemployment.
• Trough

  The low point of the economic cycle beyond which a recovery starts.
• Distribution of Income


  How incomes are spread across households within the population
• Economic Development


  Long run improvements in broad measures of income per capita, education and health outcomes and reductions in extreme poverty, hardship and inequality.
• Foreign Direct Investment


  Inflows of capital from foreign multinationals (MNCs) including takeovers and tangible investment in new factories and technology.
• Non-inflationary Growth


  Sustained growth of RNO whilst maintaining price stability.
• Balanced Growth


  When output and the capital stock grow at the same rate
• Budget Balance


  The annual balance between government spending and tax revenues.
• Current Account Balance


  When the outflows on the current account are exactly equal to the inflows
• Environmental Economics


  Studies the impact of environmental policies and devises solutions to problems resulting from them.
• Income Inequality


  The degree to which income is distributed unequally in an economy or population; can be illustrated using a Lorenz Curve
• Austerity


  Economic policy aimed at reducing a government's deficit (or borrowing) by increasing taxes or reducing spending
• Automatic Stabilisers


  Automatic fiscal changes as the economy moves through stages of the business cycle