2.5 Economic Growth

Question 1

Whats the difference between potential and actual growth

Answer 1

P- an increase in the productive capacity of an economy over time (LRAS)
A- changes in real GDP over time (AD)

Question 2

What are the factors that lead to potential growth

Answer 2

supply side factors, labour supply, stock of capital, productivity, tech improvements, high investment levels

Question 3

What causes actual growth

Answer 3

Increases in AD, a large multiplier

Question 4

What policies are used to stimulate growth

Answer 4

Keynesian- fiscal and monetary
Classical- supply side

Question 5

What is export led growth

Answer 5

when a significant part of increases in GDP are generated by exports

Question 6

What are the advantages of export led growth

Answer 6

-Injection into circular flow
-Generates profits for firms
-Increases demand for labour and employment

Question 7

What are the disadvantages of export led growth

Answer 7

-Over dependence (vulnerable to economic, political and environmental shocks)
-Persistent trade surpluses (less domestic demand, retaliation, global imbalances)
-Demand pull inflation (damages competitiveness)

Question 8

What are the advantages of economic growth

Answer 8

-High incomes
-High standards of living
-More available g/s
-Increases revenue
-Increases employment opportunities
-Improved gov budget balance
-Increases confidence
-Improves environment through efficient clean tech

Question 9

What are the disadvantages of economic growth

Answer 9

-Negative externalities (environmental damage and reduced quality of life)
-Opportunity costs (domestic consumption vs capital accumulation( (growth))
-Worsens trade balance (imports damage competitivness)