2.5 topic sheets Flashcards
Explain the impact of investment on economic growth?
In the short run increased investment increases AD, and therefore increases real output.
in the long term investment can increase the quality or quantity of capital which can increase the productive capacity of the economy. LRAS shifts to the right.
Explain using a diagram the impact od innovation or improvements on economic growth.
Innovation increases the quality of capital and can increase productivity of labour.
This increases productive potential of economy so shifts LRAS to the right.
Explain how migration affects economic growth?
Inward economic growth can increase the quantity of labour.
This will increase the productive potential of the economy.
Explain how improvements to the health service or education system would impact economic growth.
Improvement to the health service would mean that less people are sick, this would increase the quantity of labour increasing the productive potential of the economy.
Improvement in education may increase the quality of labour. This may increase productive potential.
Explain how changes in birth rate would impact economic growth.
If the birth rate increases this would increase the quantity of labour. This would cause productive potential to increase.
explain how an increase in exports would cause economic growth?
An increase in exports would cause Net Trade to increase which would increase total output in the short term.
it could also trigger increased investment to satisfy overseas demand.
Explain how government instability may affect economic growth?
If governments are uncertain this could cause business confidence to decrease which would case investment to decrease.
Explain how a credit crunch might affect economic growth?
This would make it more difficult for firms to get loans. This will therefore decrease the level of investment.
How might limited financial markets constrain economic growth?
Financial markets exist to provide savings accounts. Without these it will cause investment to decrease.
How might the quality of human capital constrain growth?
If there is low literacy this could decrease the quality of labour which would restrict productive potential.
How might capital flight constrain economic growth?
if businesses or governments spend their spare money abroad rather than domestic banks, this can act as a credit crunch. Decreasing investment.
How might corruption and conflict constrain economic growth?
These things will decrease investment and make foreign companies less likely to invest.
How might limited access to foreign currency constrain economic growth?
This can limit the ability to import raw materials which can restrict the productive potential of the economy.
Distinguish between actual and potential economic growth.
Actual economic growth- The percentage change in GDP over time.
potential- how much goods and services can be produced if all factors are efficiently and fully employe at the current rate of technology.
Give 5 examples that would increase AD or SRAS to increase economic growth.
- depreciation in interest rates
- innovation
- lower taxation rates
- ## low interest rates
