1. Economic Performance - Economic Growth, Causes, Costs & Benefits

Question 1

What causes economic growth in the short term - actual growth?

Answer 1

An increase in ADSo caused by anything that increases one or more of C+I+G+(X-M)E.g. Reduction in interest rates Increase in investment Reduction in Taxation Fall in the exchange rate

Question 2

What causes economic growth in the long term - potential growth?

Answer 2

An increase in the quantity or quality of FoP’s Anything that allows us to shift are PPF or LRAS outwardsE.g. Better technology Better raw materials Increase in productivity Increase in investment Improvement in infrastructure

Question 3

What are consequences of economic growth?

Answer 3

Employment is likely to increase Balance of payment situation is likely to worsen because of our MPC to import We may experience some demand pull inflationGeneral standards of living will increase