2.5 Economic Growth Flashcards
What are the four factors of production that can lead to economic growth?
Land, Labour, Capital, Enterprise
These factors can be increased in quantity or quality or utilized more efficiently.
How does an increase in LRAS affect economic growth?
It increases the potential level of output in an economy.
Any factor that increases LRAS will also result in economic growth.
What role does land play in economic growth?
Discovery of new resources like oil can increase economic growth.
Developing countries often grow more from exploiting new resources than developed countries.
How can the size of the workforce affect economic growth?
Changes in immigration, demography, and participation rates can impact the size of the workforce.
A larger workforce can produce more goods and services.
What is the importance of the quality of the workforce in economic growth?
Improving education enhances labour quality, increasing efficiency and output per worker.
Skilled workers are less likely to suffer from unemployment and can contribute to innovation.
What is the impact of capital investment on economic growth?
Sustained investment leads to access to new technology and improved productivity.
Not all investments increase GDP due to their nature or lack of success.
How does enterprise contribute to economic growth?
Government tax benefits and grants can encourage business development and job creation.
High taxes and benefits can reduce incentives to work and invest.
What is technological progress and how does it affect economic growth?
Improved technologies lower production costs and create new products for the market.
Increased consumption is necessary for economic growth.
How does efficiency contribute to economic growth?
More efficient production uses fewer resources, increasing output.
Competition can drive efficiency in markets.
What is actual growth?
The percentage change in GDP reflecting the economy’s production of goods and services.
It contrasts with potential growth, which is the change in productive potential over time.
Define potential growth.
The change in productive potential of the economy over time.
It reflects resources discovered or technology developed, not yet realized in GDP.
What is an output gap?
The difference between actual GDP and estimated long-term GDP.
A positive output gap indicates GDP is higher than estimated, while a negative output gap indicates it is lower.
What characterizes a boom in the trade cycle?
High national income, consumption, investment, and inflationary pressure.
The economy may operate above PPF during this phase.
What happens during a downturn in the trade cycle?
Output and income fall, leading to reduced consumption and investment.
Unemployment rises and inflationary pressure eases.
What defines a recession?
High unemployment, low consumption, and low inflation.
In the UK, a recession is defined as two successive quarters of falling GDP.
What are the expected benefits of economic growth for consumers?
Increased demand for housing, improved productive efficiency, and potential increases in happiness.
However, growth can also lead to increased inequalities and inflation.
How does economic growth impact firms?
Increased investment, improved business confidence, and higher profits.
Firms selling inferior goods may lose out due to changing market dynamics.
What are the government benefits of economic growth?
Increased tax revenues, improved public services, and potential budget surplus.
Growth leads to higher expectations from the government.
How does economic growth affect current and future living standards?
Lower poverty levels, increased availability of goods and services, and improved health outcomes.
However, environmental exploitation can lead to decreased future living standards.
Fill in the blank: Economic growth can lead to increased _______.
inequalities
This may not benefit the average consumer.
What is the relationship between increased government spending and living standards?
Increased government spending will lead to improved living standards both now and in the future
This is because better educated people usually have higher living standards.
In which countries is economic growth likely to have the highest benefits?
Economic growth is likely to have the highest benefits in developing countries.
What environmental concerns are associated with increased income?
Decreased future living standards due to exploitation of the environment, depletion of non-renewable resources, and increased pollution/waste/congestion.
Fill in the blank: A rise in income means more people have access to _______.
[electricity]
