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Economic growth and output gaps

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  • What is meant by trend growth?
    The long-term average rate of economic growth over a period of time.
  • How might a recession create a negative output gap?
    Falling aggregate demand causes actual output to fall below potential output.
  • Name one factor that can increase potential economic growth.
    Investment, improved education, technological progress, increased labour force.
  • 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.
  • Which curve shifts right when potential economic growth occurs?
    LRAS
  • What is economic growth?
    An increase in real GDP over time
  • What type of unemployment is associated with a negative output gap?
    Cyclical or demand-deficient unemployment
  • How can investment contribute to economic growth?
    It increases productive capacity and efficiency.
  • 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.
  • 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.
  • Why may inflation occur during a positive output gap?
    Demand exceeds the economy's productive capacity.
  • What is an output gap?
    The difference between actual GDP and potential GDP.
  • ketch a short-run AD/AS diagram t o show how an increase i n aggregate demand causes actual growth.
  • 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.
  • What is meant by potential economic growth?
    An increase in the economy's productive capacity (LRAS).
  • What is productivity?
    Output per worker or per hour worked.
  • How can technological progress affect economic growth?
    It increases productivity and output.
  • Sketch an AD/AS diagram to illustrate a positive output gap.
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