Share Economic growth and output gaps
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What is economic growth?
An increase in real GDP over time
What is meant by potential economic growth?
An increase in the economy's productive capacity (LRAS).
What is an output gap?
The difference between actual GDP and potential GDP.
What is a positive output gap?
When actual GDP exceeds potential GDP.
What is a negative output gap?
When actual GDP is below potential GDP.
What type of unemployment is associated with a negative output gap?
Cyclical or demand-deficient unemployment
Why may inflation occur during a positive output gap?
Demand exceeds the economy's productive capacity.
Which curve shifts right when potential economic growth occurs?
LRAS
Name one factor that can increase potential economic growth.
Investment, improved education, technological progress, increased labour force.
How can investment contribute to economic growth?
It increases productive capacity and efficiency.
How can technological progress affect economic growth?
It increases productivity and output.
What is productivity?
Output per worker or per hour worked.
Why does higher productivity promote economic growth?
More output can be produced with the same resources.
How can education and training increase potential growth?
By improving workers' skills and productivity.
Give one government policy that may increase long-run economic growth.
Spending on education, infrastructure, or research and development.
Why may economic growth reduce unemployment?
Firms require more workers to meet higher demand.
