Economics Unit 4

Economics Unit 4

Economic growth
1. Invest new capital goods (physical)
  1. Enlarge national capital stock and human capital
  2. Technical process better?
    1. Endogenous growth theory: Gov create supply conditions- favour investment and technical progress
      1. Infrastructure and judicial system
Costs and benefits of economic growth
1. Aim of econ activity: Improve economic welfare & standards of living
  1. Econ growth help achieve this, econ growth be compatible with econ development
    1. Economic devolpment
      1. Improve living standards- reduces poverty & human suffering
      2. Access to resources
      3. Access to human development- education
      4. Environmental sustainability and regeneration
        Sustainable economic growth
        Finite resources
        Use renewable
        Resource degration
        Technologies minimise polllution
Fluctuations in economic actviity
1. Speculative bubbles
  1. Rapid growth in asset prices, far above real value. Bubble burst & confidence low, fall into recession
2. Demand shocks
  1. Contract demand and in boom
    1. Demand management policies
      1. Monetary Policy
      2. Fiscal policy
      3. Need to be accurate timing
        Bad timing destabilise economy and make it more volatile
        Long-term risky investments abandoned for less risky short-term projects
        Unexpected interest rate/tax changes may affect competitiveness and long term growth adversly
  2. Reflate/ boost in recession
3. Political business cycle
  1. Generate a pre election boom & deflate the economy after election until the next one
4. Seasonal fluctutaions
5. Long cycles
  1. Investments in long run technology progress
    1. Creating a "new economy"
6. Supply shocks
National Income
1. Indicator for living standards?
  1. Underestimate economic welfare & living standards
    1. Non-monetised economy underrespresented
      1. DIY and housework
    2. Economic activity (illegal) in hidden economy is ommited
    3. Positive externalities not seen
    4. Quality improvements are under- represented
  2. Overestimate economic welfare & living standards
    1. Negative externalities not seen
      1. Welfare loss may be seen as increase in national output
        Producing higher output = more strain on workers and get ill
        Extra production & consumption in healthcare seen as welfare gain!
      2. Installing regrettables raises national income
        Burglar alarms- but prefer not to need them
      3. Income distribution
  3. Standard of living made up of
    1. Economic welfare from goods and services
    2. Economic welfare from quality of life factors
    3. Economic welfare from public goods and merit goods
2. Comparing between countries
  1. Statistical sophisitication of data collection

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