2.1 Economic Growth

Question 1

What is short run economic growth?

Answer 1

An increase in the real GDP of an economy over a given period of time, utilising current resources and technology

Question 2

What causes short run economic growth?

Answer 2

An increase in either aggregate demand or short run aggregate supply

Question 3

What is long run economic growth?

Answer 3

An increase in an economy’s potential level of real output over time

Question 4

What causes long run economic growth?

Answer 4

An increase in long run aggregate supply

Question 5

What is productivity?

Answer 5

Output per unit factor of input

Question 6

What is infrastructure?

Answer 6

Large scale physical capital that is necessary for economic activity to take place

Question 7

What are institutions?

Answer 7

The established set of rules which facilitate socio-economic interactions

Question 8

What are the benefits of economic growth?

Answer 8

Higher employment, higher living standards, increased tax revenue, multiplier and accelerator effects, increased business confidence

Question 9

What are the costs of economic growth?

Answer 9

Growth may become unsustainable, rising income and wealth inequality

Question 10

What can cause some countries to have difficulties growing?

Answer 10

Higher investment will not generate economic growth if the economy lacks human capital and adequate infrastructure
Higher saving is unlikely to be turned into investment if the economy lacks an efficient financial system to bring borrowers and lenders together
People may prefer to send their savings abroad as it may be deemed more secure
Foreign aid can be squandered through corruption