2.5 Economic Growth

Question 1

What is required for economic growth to occur?

Answer 1

An increase in quality or quantity of land, labour, capital, or enterprise, or more efficient use of these factors.

Question 2

What is LRAS and its significance in economic growth?

Answer 2

Long-Run Aggregate Supply; an increase in LRAS indicates an increase in the potential level of output in an economy.

Question 3

How can land contribute to economic growth?

Answer 3

Discovery of new resources, such as oil, can significantly enhance economic growth, particularly in developing countries.

Question 4

What factors influence the size of the workforce?

Answer 4

Immigration, demographic changes, and participation rates.

Question 5

How does improving the quality of the workforce affect economic growth?

Answer 5

It increases efficiency and output per worker through better education and skills.

Question 6

What role does capital play in economic growth?

Answer 6

Sustained investment leads to access to new technology and improved productivity.

Question 7

What is the impact of enterprise on economic growth?

Answer 7

Government incentives like tax benefits encourage business development, leading to job creation and increased goods and services.

Question 8

True or False: Technological progress can lower production costs.

Answer 8

True

Question 9

What is actual growth?

Answer 9

The percentage change in GDP reflecting the production of more goods and services.

Question 10

Define potential growth.

Answer 10

The change in productive potential of the economy over time, indicated by shifts in LRAS or the PPF curve.

Question 11

What is an output gap?

Answer 11

The difference between actual GDP and the estimated long-term GDP value.

Question 12

What characterizes a positive output gap?

Answer 12

GDP is higher than the estimated long-term GDP.

Question 13

What are the phases of the trade cycle?

Answer 13

Boom, downturn, recession (slump), and recovery.

Question 14

What occurs during a boom phase?

Answer 14

High national income, increased consumption and investment, and rising imports.

Question 15

What defines a recession?

Answer 15

High unemployment, low consumption, investment, and imports, with potential deflation.

Question 16

How does economic growth affect consumers?

Answer 16

Increased demand for housing, potential rise in wealth, but may lead to inflation and inequalities.

Question 17

What are the benefits of economic growth for firms?

Answer 17

Increased investment, improved business confidence, and higher profits.

Question 18

How does economic growth impact government revenues?

Answer 18

Higher tax revenues from increased economic activity allow for improved public services.

Question 19

What is the relationship between economic growth and living standards?

Answer 19

Economic growth generally leads to lower poverty levels and improved quality of life.

Question 20

Fill in the blank: Economic growth can lead to _______ of the environment.

Answer 20

exploitation

Question 21

What is a characteristic of a downturn phase?

Answer 21

Declining output and income, leading to reduced consumption and investment.

Question 22

What happens during the recovery phase of the trade cycle?

Answer 22

National income and output begin to increase, leading to lower unemployment.

Question 23

What is the relationship between increased government spending and living standards?

Answer 23

Increased government spending will lead to improved living standards both now and in the future

Better educated people usually have higher living standards.

Question 24

In which countries is economic growth likely to have the highest benefits?

Answer 24

Developing countries

Economic growth provides significant advantages in developing regions.

Question 25

What is a potential negative consequence of increased economic growth?

Answer 25

Decreased future living standards due to environmental exploitation ## Footnote A rise in income leads to increased consumption of resources and pollution.

Question 26

How does a rise in income affect access to electricity?

Answer 26

More people have access to electricity and use it more freely ## Footnote This contributes to depletion of non-renewable resources.

Question 27

What are some concerns related to sustainability of growth?

Answer 27

Depletion of non-renewable resources, increased levels of pollution, waste, and congestion ## Footnote These concerns affect future generations.

Question 28

How might higher incomes influence environmental practices?

Answer 28

Higher income households can buy cleaner fuels and support research for greener technology ## Footnote Richer countries can devote resources to developing efficient technologies.

Question 29

What demographic trend is associated with higher income households?

Answer 29

Higher income households tend to have less children ## Footnote This lowers the natural rate of population growth, reducing future resource needs.

Question 30

What is a potential social cost of economic growth?

Answer 30

Increased inequalities between rich and poor ## Footnote Only the rich may benefit from economic growth, potentially lowering the living standards of the poor.

Question 31

True or False: Economic growth guarantees equal benefits for all socio-economic classes.

Answer 31

False ## Footnote Economic growth may disproportionately benefit the wealthy.