2.1.1 Causes of Economic Growth

Question 1

what causes short term growth

Answer 1

• increases in real GDP
• any factor that causes increased AD
• any factor that causes increased SRAS

Question 2

how do we show short term growth using a PPF curve

Answer 2

outward shift within curve
- at point A there are underutilised resources and spare productive capacity
- movement from A to B is short run economic growth. rising AD leads to an expansion of SRAS and a rise in the utilisation of resources

Question 3

how do we show short term growth using an AD/AS diagram

Answer 3

either an outward shift of AD or an outward shift of SRAS

Question 4

what causes long-run economic growth

Answer 4

• increases in productive potential
• any factor that causes the quality of the factors of production to rise
• any factor that causes the quality of the factors of production to rise

Question 5

what is meant by trend growth

Answer 5

the long term non-inflationary increase in GDP caused by an increase in a country’s productive capacity
it is the average sustainable rate of economic growth over time

Question 6

how do we show long term growth using a PPF curve

Answer 6

• an outward shift from PPF1 to PPF2 represents long run economic growth - an increase in productive potential
• an outward shift of the PPF is equivalent to an outward shift of an economy’s LRAS

Question 7

how do we show long run growth using the classical LRAS curve

Answer 7

an outward shift of LRAS signifies an increase in potential output and employment and signifies real economic growth

Question 8

how do we show long run growth using the Keynesian LRAS curve

Answer 8

outward shift of curve, AD crossing through each

Question 9

what is long run growth for most modern economies determined by

Answer 9

the growth of labour and capital productivity - caused by an improvement in the quality of the factor or production