2.1 Economic Growth

Question 1

Define economic growth

Answer 1

The expansion of the productive potential of the economy. It can be depicted by an outward shift in the PPF or an outward shift in a country’s LRAS curve

Question 2

What is the governments economic growth macroeconomic objective

Answer 2

To have sustained and sustainable economic growth.

Question 3

How is short term growth calculated and when

Answer 3

It is calculated annually by the percentage change in real national output

Question 4

When does economic growth occur

Answer 4

When there is a rise in the value of Gross Domestic Product ( GDP )

Question 5

What is GDP

Answer 5

It measures the value of goods and services produced in an economy.

Question 6

What can economic growth lead to

Answer 6

Can lead to higher living standards and more employment opportunities

Question 7

What is real GDP

Answer 7

The value of GDP adjusted for inflation

Question 8

What is nominal GDP

Answer 8

The value of GDP without being adjusted for inflation

Question 9

What is GDP per capita

Answer 9

It is the value of total GDP divided by the population of the country

Question 10

What is the graph for the business cycle

Answer 10

Question 11

What happens during recessions

Answer 11

The real output in the economy falls, and there is negative economic growth. Also governments may increase spending to try and stimulate the economy

Question 12

What happens during periods of economic growth

Answer 12

Governments may receive more tax revenue since consumers will be spending more and earning more

Question 13

What are the characteristics of a boom

Answer 13

High rates of economic growth
Near full employment
Demand-pull inflation
Consumers and firms have hugh confidence which leads to high rates of investment

Question 14

What are the characteristics of a recession

Answer 14

Negative economic growth
Low inflation rates
Government budgets worsen due to more spending and lower tax revenues

Question 15

Factors that cause economic growth

Answer 15

Increase in AD
Improving the labour force, with better quality and quanitity to increase productivity
Improved technology

Question 16

What is actual growth

Answer 16

This is the short run growth and it id the percentage increase in a country’s real GDP. It is usually measured annually and is caused by increases in AD

Question 17

What is potential growth

Answer 17

This is the long run expansion of the productive potential of an economy. It is caused by and increase in AS

Question 18

How do you illustrate short run economic growth and explain the graph

Answer 18

A right shift in the AD curve shows short run economic growth. This is from AD1 to AD2. Negative economic growth is shown by AD1 to AD3

Question 19

What causes a rise in economic growth to occur

Answer 19

Consumers and firms have higher confidence

Lower taxes give more disposable income

Depreciation in a currency will increase AD

Question 20

How do you illustrate long run economic growth and explain the diagram

Answer 20

A right shift in the LRAS curve shows long run economic growth.

Question 21

What are the costs of economic growth to consumers

Answer 21

If there is high inflation then inequality could increase

Likely to be higher demand-pull inflation due to higher consumer spending

Consumers have to spend more time and effort finding the best deal while prices are rising

Question 22

What are the costs of economic growth to firms

Answer 22

They may have to keep changing their prices to meet inflation

Question 23

What are the costs of economic growth to the government

Answer 23

They might increase spending on healthcare if the consumption of demerit goods increases

Question 24

What are the costs of economic growth to current and future living standards

Answer 24

High levels of growth can lead to damage the environment in the long run due to increase negative externalities

Question 25

What are the benefits of economic growth to consumers

Answer 25

Average consumer income increases as employment increases as well as wages

Consumers feel more confident in the economy

Question 26

What are the benefits of economic growth to firms

Answer 26

They might make more profits which increases investment

Higher levels of investment can develop new technology to improve productivity and lower costs

Question 27

What are the benefits of economic growth to the government

Answer 27

Budgets may improve since fewer people require welfare payments and more people will be paying tax

Question 28

What are the benefits of economic growth to current and future living standards

Answer 28

With income increases, some people may show more concern towards the environment

Higher wages mean consumers enjoy more goods and services of a higher quality

Increased life expectancy and education levels