2.5 economic growth

Question 1

What is actual growth?

Answer 1

Measure of changes in real GDP, adding all incomes in the country, or spending or all output

Question 2

What is potential growth?

Answer 2

Shows how much the economy could produce if there was full employment of all the resources in the economy, reflected in changes of LRAS

Question 3

What are causes for changes in AD?

Answer 3

Increase in consumption, increase in investment, increase in government expenditure, increase in net exports

Question 4

What is increase in consumption caused by?

Answer 4

Higher real wages, or cuts in income tax or increase in value of assets (wealth effect)

Question 5

What is increase in investment caused by?

Answer 5

Increased confidence, lower interest rates

Question 6

What is increase in government expenditure caused by?

Answer 6

Political priorities

Question 7

What is increase in net exports caused by?

Answer 7

Depreciation of the countries currency

Question 8

What causes a change in LRAS?

Answer 8

Increase in investment, new technology, increase in net migration, supply-side policies

Question 9

What causes an increase in investment?

Answer 9

In infrastructure

Question 10

What causes new technology?

Answer 10

Use of robots and artificial intelligence

Question 11

What causes increase in net migration?

Answer 11

Making it easier for people to immigrate into the country

Question 12

What causes supply-side policies?

Answer 12

Policies would increase productivity

Question 13

When does economic growth occur?

Answer 13

When there is an increase in AD or LRAS, new equilibrium real output at a level when more is produced

Question 14

What factors could inhibit economic growth?

Answer 14

Lack of access to funds for investment, corrupt governments, currency instability or an overvalued exchange rate, poor quality human capital, protectionism by other countries limiting free international trade

Question 15

What does positive output gap mean?

Answer 15

Occurs when actual growth is higher than potential growth

Question 16

What does negative output gap mean?

Answer 16

Occurs when actual growth is below potential growth

Question 17

why are output gaps difficult to measure?

Answer 17

difficulty of measuring potential outputs, relying heavily on relationships that are intertwined in the economy

Question 18

what happens to the output gap if actual growth is slower than the trend growth?

Answer 18

inflationary pressures, negative output gap and inflation

Question 19

what are the characteristics of a boom?

Answer 19

-lower unemployment
-more consumer spending
-less government spending
-less spare capacity
-rising real incomes
-rising sales of normal goods

Question 20

what are the characteristics of a recession?

Answer 20

-higher unemployment
-less consumer spending
-more government spending
-more spare capacity
-falling real incomes
-rising sales of inferior goods

Question 21

what is the benefits of economic growth on consumers?

Answer 21

associated with rising real incomes, able to afford more g/s, higher standards of living, increase life expectancy more subjective happiness

Question 22

what are benefits of growth on firms?

Answer 22

higher real incomes and increase demand for g/s, benefit from increased profits, shareholders increased returns

Question 23

what are benefits of economic growth on the government?

Answer 23

real incomes rising, government tax revenues are rising, workers paying more tax, more VAT, can use this to reduce income inequality

Question 24

what are benefits of economic growth on current and future living standards?

Answer 24

lift people out of poverty, developing countries may gain foreign investment , improvements in infrastructure

Question 25

what are costs of economic growth on consumers?

Answer 25

danger that rapid economic growth growth can lead to an increase in rate of inflation, if rate of inflation is higher than wages increase, wages would fall, may be expense of working longer hours, increase in health conditions associated with wealth (diabetes)

Question 26

what are costs of economic growth on firms?

Answer 26

rapid economic growth, increase in demand for workers and raw materials, increase in wages and price of raw materials , firms cost increase reducing profits

Question 27

what are costs of economic growth on the economy? (balance of trade?

Answer 27

higher incomes, import more, exports fall, imports rise and balance of trade deteriorates. ev, export-led growth improvement of balance of trade expected

Question 28

what are costs of economic growth on the economy? (distribution of income)

Answer 28

when economy grows, those who benefits may be those who are already rich e.g manager and shareholders enjoy increased profit, other employees may not receive an increase in wages

Question 29

what are costs of economic growth on the economy? (environment)

Answer 29

economic growth frequente increase in external costs, air and noise pollution. ev, higher incomes means governments have a larger tax revenue to clear up environmental damage

Question 30

what are costs of economic growth on the economy? (current and future living standards)

Answer 30

economy may have to forgo current consumption, however future living standards increase as PPF shifts to the right