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Economic growth and output gaps
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Why might a country experience economic growth without an increase in living standards?
The benefits of growth may be unevenly distributed, or population growth may exceed GDP growth.
What is meant by trend growth?
The long-term average rate of economic growth over a period of time.
Sketch an AD/AS diagram to illustrate a positive output gap.
ketch a short-run AD/AS diagram t o show how an increase i n aggregate demand causes actual growth.
How might a recession create a negative output gap?
Falling aggregate demand causes actual output to fall below potential output.
Why may economic growth reduce unemployment?
Firms require more workers to meet higher demand.
Give one government policy that may increase long-run economic growth.
Spending on education, infrastructure, or research and development.
How can education and training increase potential growth?
By improving workers' skills and productivity.
Why does higher productivity promote economic growth?
More output can be produced with the same resources.
What is productivity?
Output per worker or per hour worked.
How can technological progress affect economic growth?
It increases productivity and output.
How can investment contribute to economic growth?
It increases productive capacity and efficiency.
Name one factor that can increase potential economic growth.
Investment, improved education, technological progress, increased labour force.
Which curve shifts right when potential economic growth occurs?
LRAS
Why may inflation occur during a positive output gap?
Demand exceeds the economy's productive capacity.
What type of unemployment is associated with a negative output gap?
Cyclical or demand-deficient unemployment
What is a negative output gap?
When actual GDP is below potential GDP.
What is a positive output gap?
When actual GDP exceeds potential GDP.
What is an output gap?
The difference between actual GDP and potential GDP.
What is meant by potential economic growth?
An increase in the economy's productive capacity (LRAS).
What is economic growth?
An increase in real GDP over time
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