2.1.1 economic growth

Question 1

Economic growth

Answer 1

Increase in the level of output by a nation

Question 2

How is economic growth measured?

Answer 2

Using GDP (gross domestic product)

Question 3

GDP

Answer 3

The market value of all final goods and services produced in a period

Question 4

What are the limitations of GDP as a measure of growth?

Answer 4

• Inflation
• Population changes
• Statistical errors
• Value of home-produced goods
• Hidden economy
• GDP and living standards
• External costs

Question 5

What are the different aspects in the economic cycle?

Answer 5

• Boom
• Downturn
• Recession/depression
• Recovery

Question 6

Boom

Answer 6

• Peak of the economic cycle
• GDP is growing fast (economy is performing well)
• New firms enter the market
• Existing firms expand
• Profits rise
• Demand rises
• Jobs created/lower unemployment
• Wages rise
• Prices may also rise

Question 7

Downturn

Answer 7

• Downwards slope of the economic cycle
• Occurs after a boom
• The economy is growing at a slower rate
• Demand stops increasing/begins to fall
• Unemployment rises
• Wage increases slow down
• Firms stop expanding
• Firms leave the market
• Profits fall
• Prices rise at a slower rate

Question 8

Recession/depression

Answer 8

• Trough of the economic cycle
• GDP starts to fall
• Widespread poverty
• Demand starts to fall (particularly non-essentials)
• Unemployment rises sharply
• Low business and consumer confidence
• Bankruptcies rise
• Prices become flat/fall

Question 9

Recovery

Answer 9

• Upwards slope in the economic cycle
• GDP starts to rise again (upswing in economy)
• businesses and consumers regain confidence
• Economic activity increases (e.g. increased consumption/spending)
• Demand starts to rise
• Unemployment begins to fall
• Prices start to rise

Question 10

Impact of economic growth on employment

Answer 10

• Leads to businesses generating more output
• More production
• More workers required
• Firms hire more workers
• Reduces unemployment
• Governments have more money to spend on education, healthcare, infrastructure which creates more jobs

Question 11

Impact of economic growth on standards of living

Answer 11

• Increased GDP leads to more disposable income (on average)
• People can buy more goods and services of better quality, so they may get better food, improved housing, more leisure goods (wants)
• May retire earlier
• May live longer (life expectancy increases)
• Can afford healthier diets
• Advances in medical technology
• Workers may be able to spend less time working due to the improvements in efficiency

Question 12

Impact of economic growth on poverty

Answer 12

• Reduces poverty due to the expansion of existing businesses and new firms which helps create new jobs/spaces for workx