2.5 Economic Growth

Question 1

What is needed in order for economic growth to occur.

Answer 1

There needs to be an increase in the quality or quantity of one of the four factors of production.

Question 2

How will land have an impact on economic growth

Answer 2

The discovery of new resources e.g. oil will increase economic growth. Economists argue that developing countries tend to grow the most from exploiting new resources, whilst they do not have a significant effect in developed countries.

Question 3

How will labour have an impact on economic growth

Answer 3

An increase in the quality or quantity of labour will improve economic growth.

Question 4

How could the size of the workforce be increased

Answer 4

Changes in the size of the workforce can come from immigration, demography (age profile) of the country or participation rates.

Question 5

How can the quality of the workforce cause an increase in economic growth

Answer 5

Improved quality can occur from education, changes in technology and innovation

Question 6

What is the effect of capital on econmic growth

Answer 6

If an country receives investment then they are able to develop new technology which can be used to improve productivity. It will also mean more machines can be bought and used, even if these are not a technological advancement, so more goods can be produced.

Question 7

What is the effect of enterprise on economic growth

Answer 7

If the government offers tax benefits and grants, they will encourage the development of business, creating jobs and meaning more goods and services are produced, which will increase economic growth.

Question 8

Why is efficiency important a in economic growth

Answer 8

it means less resources are needed to produce each good, so more goods can be produced

Question 9

What is the effect of a change in actual growth in th economy

Answer 9

This is the percentage change in GDP. It is when the. Economy actual produces more goods and services.

Question 10

How does international trade effect economic growth

Answer 10

● Many economists argue that AD can affect economic growth, through ​export-led
growth​: a rise in AD through increased exports.

● This has been effective in countries such as ​Germany, Japan and China and prevents the poor balance of payments that tends to occur as a result of economic growth.

● Although increased exports initially increases AD rather than LRAS, sustained high export levels will encourage, or force, ​firms to invest and increase demand for labour​, which will lead to economic growth.

● Moreover, in order to be competitive in the international market, British firms will have to become ​more efficien​t as they are competing with more firms than in just the UK market.

Question 11

What this the long run trend rate of growth

Answer 11

This is the average sustainable rate of economic growth over a period of time.

Question 12

What is the actual growth rate

Answer 12

This is the actual change over time and it’s changes are what make up the business cycle.

Question 13

What is the difference between the long term growth rate and a the actual growth

Answer 13

This is the output gap

Question 14

What is an output gap

Answer 14

An output gap is the ​difference between the actual level of GDP and the estimated long-term value for GD

Question 15

What is a positive and negative output gap

Answer 15

A ​positive output gap is when GDP is higher than estimated whilst a ​negative output gap is when GDP is lower than estimated.

Question 16

What does it mean if there is a negative output gap

Answer 16

With a negative output gap, there is spare capacity in the economy with factories, offices and workers not being utilised to produce goods and services.

Question 17

Why are out put gaps difficult to measure

Answer 17

exact position of the LRAS is unknown and also because initial estimates of the real GDP are often inaccurate.

Question 18

how will an increase in immagration increase the workforce

Answer 18

Immigration can be vital in enabling economic growth if it provides potential workers with the skills, knowledge and desire to work within the country. On the whole, the larger the workforce the more goods and services that can be produced.

Question 19

how could an increase in demography effect the workforce

Answer 19

A change in the age profile of the population i.e. the amount of people of working age will affect economic growth: the more people of working age there are, the more growth there will be. Raising the retirement age will increase the population of working age.

Question 20

how could the govment increase participation rates

Answer 20

The government can take action such as providing free childcare to encourage mothers to go back to work, which will increase participation rates.

Question 21

how could to much wealth distribution decrease economic growth

Answer 21

If there is too much wealth distribution (i.e. too high taxes and benefits), there will be little incentive to work hard as the rich know a lot of their money will be taken away and the poor know that there is no need to work as benefits will give them just as much money as a job on minimum wage. This lack of incentive will mean that businesses won’t invest and so there will be little to no economic growth.

Question 22

how can technoligical proggess increase economic growth

Answer 22

Improved technologies mean that the average cost of production is lower, whether this is because it is quicker to produce or less labour or equipment is needed. Also, it creates new products for the market and this helps to increase consumption and keeps MPC high as there are new things to buy. Without increased spending, there would be little economic growth.

Question 23

how can the goverment insure effciency for economic growth

Answer 23

One way the government can ensure efficiency is to keep up competitionasit will means producers are forced to lower prices or increase quality so will have to improve efficiency to keep profits high.

Similarly, there may not be an efficient capital market (i.e. banks) so farmers will not have access to loans to expand their businesses.

Question 24

what is actual growth

Answer 24

The ​actual growth is the percentage change in GDP. It is when the economy is actually produced more goods and services.

Question 25

what is potentail growth

Answer 25

Potential growth is the change in productive potential of the economy over time, so the LRAS or PPF curve shifts.

Question 26

Draw and explain a classic aggreate demand and supply diagram

Answer 26

check psy math tut

Question 27

what is the trade cycle and how is it measured

Answer 27

This is the ​periodic but irregular up and down movements in economic activit​y, measured by fluctuations in real GDP and other macroeconomic variables

Question 28

what are the four main phases of a business cycle

Answer 28

boom, downturn, recession (slump) and recovery​.

Question 29

draw a trady cycle diagram

Answer 29

check the trade cycle

Question 30

what are the characteristics of a boom

Answer 30

When economy is at its peak (the boom), ​national income is high and the economy is likely to be working above PPF where there is a ​positive output gap​. Consumption and investment tend to be high as are tax revenues, and wages will be increasing. Usually, the country will increase imports to meet the demand of high-income consumers that cannot be met by the goods produced within the country. There will also be ​inflationary pressure​.

Question 31

what is a downtown

Answer 31

the economy begins to move from a boom to a recession, output and income fall which leads to a fall in consumption and investment as well as tax revenues. Payments for benefits rise as unemployment rises. People begin to accept jobs for lower wages due to higher levels of unemployment. This causes inflationary pressure to ease and a fall in the number of imports.

Question 32

what are the charicteristics of a recession

Answer 32

When the economy is at the bottom of the cycle, it is in a slump, trough, depression or recession. There tends to be ​high unemployment causing low consumption, investment and imports. ​Inflationary pressure will be low and there may even be deflation. In the UK, the government defines recession as where ​real GDP falls in at least two successive quarters.

Question 33

what is a recovery

Answer 33

As the economy moves out of a recession, it moves into a recovery/expansion phase as national income and output begin to increase with unemployment falling and consumption, investment and imports increasing. Inflationary pressure begins to grow as workers start to demand higher wage

Question 34

what are the beniftis of economic growth on consumers

Answer 34

● There will be an increase in demand for housing as people have more money and so are able to afford to buy properties, which will increase house prices. Shares are likely to increase in value as businesses are making more money and future prospects are good. The rising prices of shares and housing will increase wealth and lead to ​positive wealth effect​.
● Improved productive efficiency due to better technology could lead to ​lower prices or higher quality goods​.

Question 35

what some issues with economic growth on conumers

Answer 35

economic growth could lead to ​increased inequalities and so may not have any effect on the average consumer and may lead to ​inflation​, which has negative effects for consumers.

Question 36

what is the benift of economic growth on firms

Answer 36

Investment ​will increase since businesses are more successful. They will have more money to invest and more incentive to invest as they will know they can make money from their investments.
● Business confidence will improve as there are potential demand increases for businesses’ products and this confidence will also lead to increased investment.
● As a result of increased investment from both businesses and governments, technology will improve. There will be more research and development done to invent more technology and more firms will be able to have the best technology, which is likely to increase productive efficiency and lead to ​lower costs.
● The combination of higher demand and lower costs is likely to lead to ​higher profits.
● Economic growth also provides the ​opportunity for new firms to establish
themselves​ and allows existing ones to make more profit.

Question 37

what are some issues firms may face as a result of economic growth

Answer 37

On the other hand, firms who sell inferior goods (with negative income elasticities) may lose out. Changing technologies and globalisation also mean that some firms find their ​markets disappearing ​e.g. DVD rental stores.

Question 38

what will are some benefits of economic growth on the goverment

Answer 38

● Tax revenues will rise as more goods and services are being bought, more income is being earnt and more profits being made. This means the government has ​more money to put into the NHS, education, benefits etc.; the quality of these systems will be improved, and this will help to improve ​living standards​.
● It can help to reduce the ​budget deficit, ​perhaps even bringing about a budget surplus which would allow money to be saved for future recessions.

Question 39

what is are some benifts of ecnomic grwoth on furture lving stantdards

Answer 39

● Economic growth will result in ​lower poverty levels​. An increase in the production of goods and services will increase jobs so there will be less unemployment and less people on benefits. Wages are also likely to increase.
● There will be ​more goods and services for people to enjoy​, so the poor will be able to get the goods and services they need instead of only the rich getting what they want.
● Housing standards and the quality of food increases due to economic growth. Health also tends to increase: not only does life expectancy rise but people have a higher quality of life in their old age.
● Increased ​government spending will lead to improved living standards both now and in the future, as better educated people usually have higher living standards.
● Economic growth is likely to have the ​highest benefits in developing countries.

Question 40

what are some issues with current living standards that may occur from economic growth

Answer 40

However, there could be decreased future living standards due to ​exploitation of the environment. A rise in income means more people have access to electricity etc. and use it more freely. This causes depletion of non-renewable resources, concern about sustainability of growth for future generations and increased levels of
pollution/waste/congestion.
● On the other hand, it could be argued that people with higher incomes are able to
buy ​cleaner fuels and richer countries can ​devote resources for research and development of cleaner resources and ‘greener’, more efficient technology. Also, higher income households tend to have less children which lowers natural rate of population growth, meaning less resources are needed for the future.
● Another cost may be that economic growth may result in ​increased inequalities between rich and poor. The rich may be the only ones that have gained from the economic growth and they may even lower the living standards of the poor by exploiting the poor.