2.5 Economic Growth

Question 1

Draw:
Keynesian AD/AS negative output gap

Question 2

Draw:
Classical AD/AS negative + positive output gap

Question 3

What is the difference between positive and negative output gaps?

Answer 3

Positive: actual GDP/output is more than potential GDP

Negative: actual GDP/output is less than potential GDP

Question 4

What is the difference between actual and potential growth?

Question 5

3 characteristics of a boom

Answer 5

• Low unemployment
• Accelerating inflation rate
• Rising asset prices

Question 6

3 characteristics of a recession

Answer 6

• Rising unemployment
• Reduced investment
• Falling consumer demand

Question 7

What is the cause of short-run economic growth?

Answer 7

Caused by changes in components of AD (rightward shift in AD)

Question 8

What is the cause of long-run economic growth?

Answer 8

Caused by improvements to quality or quantity of FOP (outward shift in LRAS)

Question 9

What is actual growth?

Answer 9

When there is an increase in the quantity of goods/services produced in an economy in a given time

Question 10

What is potential growth?

Answer 10

An increase in the productive potential of an economy (e.g outward shift in PPF)

Question 11

What is export-led growth?

Answer 11

Growth that occurs as a result of an increase in the sale of goods/services to foreign countries