Economic growth
Introduced| English | Meaning |
|---|---|
| business cycle/ˈbɪznəs ˈsaɪkl/ | Fluctuations in economic activity between expansion and contraction over time. |
| potential growth/pəˈtenʃl ɡrəʊθ/ | An increase in an economy's capacity to produce goods and services sustainably. |
| actual growth/ˈæktʃuːəl ɡrəʊθ/ | Real GDP rise. |
| recession/rɪˈseʃn/ | A significant, sustained decline in an economy's overall activity. |
| recovery/rɪˈkʌvəri/ | A phase in which economic activity rises again after a downturn. |
| human capital/ˈhjuːmən ˈkæpɪtl/ | The knowledge, skills, experience and health that contribute to people's productive ability. |
Why economies boom and bust
- No economy grows in a smooth line — it surges, overheats, slumps, and recovers, again and again.
- Understanding the business cycle 经济周期 and what drives growth is the heart of macro policy.
Potential growth is best shown on a PPF as:
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Potential (capacity) growth shifts the whole PPF out; actual growth can be a move toward/along it.
Actual vs potential growth 潜在增长
- Actual growth 实际增长 = the real rise in GDP this year (moving toward, or along, the PPF).
- Potential growth = the rise in the economy's capacity (the PPF shifting out) — from more or better resources and technology.
Economic growth shifts the frontier out
Growth means the economy can produce more of BOTH goods — the whole frontier moves outward as resources or technology improve.
A recession is conventionally one quarter of falling real GDP.
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False. The common definition is two consecutive quarters of negative real GDP growth. A single quarter's fall is not enough.
Put the phases of the business cycle in order, starting from the peak.
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The cycle runs boom → slowdown → recession → recovery, then back to boom.
The business cycle
- Real GDP cycles around its long-run trend: boom → slowdown → recession 衰退 → recovery 复苏.
- A recession is conventionally two consecutive quarters of falling real GDP.
Real GDP swings above and below its long-run trend — booms and recessions.
Worked example. GDP rises from 500bn to 520bn in a year. Growth rate = (20 ÷ 500) × 100 = 4%.
GDP rises from 500bn to 520bn in a year. What is the growth rate (%)?
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(20 / 500) × 100 = 4%.
Causes and costs
- Causes of growth: investment, technology, education (human capital 人力资本), more labour.
- Benefits: higher incomes, more jobs, better public services. Costs: inflation risk, inequality, environmental damage, resource depletion.
Spending by firms on capital goods, which raises future capacity, is called ______.
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Investment is a key driver of both actual and potential growth.
You've got it
- actual growth = real GDP rise; potential growth = capacity rise (PPF shifts out)
- the business cycle: boom → slowdown → recession → recovery, around a rising trend
- growth comes from investment, technology, human capital; it has benefits and costs
Write from an output gap of 60
- Potential output is 1000.
- Actual output is 940.
What is the negative output gap?
Spare capacity is potential minus actual output.
What is the output gap?
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1000 minus 940 is unused potential.