2.5 economic growth Flashcards
1
Q
what causes economic growth
A
- there needs to be an increase in quality or quantity of one of the four factors of productioin: land, labour, capital or enterprise, or these being used more efficiently
- all economists agree that an increase in LRAS will increase the potential level of output in an economy
- any factor which increases the LRAS, will also increase economic growth
2
Q
explain how land affects economic growth
A
- 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
- Saudi Arabia has experienced large growth rates almost purely because of their discovery of oil and without this it is likely they would still be developing
3
Q
explain how size of the workforce affects economic growth
A
- changes in the size of the workforce can come from immigration, demography (age profile) of the country or participation rates
- 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
- the government can take action such as providing free childcare to encourage mothers to go back to work, which will increase participation rates
- 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
4
Q
explain how quality of the workforce affects economic growth
A
- in the long run, improving the quality of labour is perhaps more important; this can be done through education
- improved education will improve labour quality as it will mean that workers have all the skills they need and are more efficient, so output per worker increases
- more skilled workers will also be less likely to suffer from structural unemployment as they will have greater occupational mobility and so this will increase the output of the economy as there are less unused resources
- additionally, more skilled workers will be able to contribute to change i.e. new technology, business ideas, innovation etc. and this will help to improve economic growth
5
Q
explain how capital affects economic growth
A
- if a country receives sustained investment, they will be able to access or develop new technology which will enable the country 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
- not all investment will lead to increased GDP because some investment is unsuccessful whilst it is argued that other investment doesn’t increased GDP because of its nature e.g. building houses
6
Q
explain how enterprise affects economic growth
A
- 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
- 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
7
Q
explain how technological progress affects economic growth
A
- 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
8
Q
A
