2.5.1 - 2.5.4 economic growth

Question 1

what causes short run economic growth to occur

Answer 1

changes to any components of AD

Question 2

what causes long run economic growth to occur

Answer 2

any improvement to quality or quantity of the factors of production

Question 3

actual economic growth occurs when

Answer 3

there is an increase in the quantity of goods and services produced in the economy in a given period of time

Question 4

how is actual economic growth measured by

Answer 4

the percentage change in real GDP

Question 5

potential growth occurs when

Answer 5

there is an increase on productive potential of an economy as demonstrated by a shift outwards of the production possibilities frontiers (PPF) or the long run aggregate supply curve

Question 6

international trade is

Answer 6

an important source of income for many countries

Question 7

export led economic growth refers to

Answer 7

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

Question 8

actual growth can be differentiated from

Answer 8

long term trends in growth rates

Question 9

long term growth trend is

Answer 9

the underlying trend rate of economic growth over a longer period of time

determined by the constant increases in productive capacity of an economy (as)

Question 10

how to reduce impact of outliers in data

Answer 10

use long term growth

Question 11

output gap def

Answer 11

the difference between the actual level of output and the maximum potential level of output

Question 12

positive output gap

Answer 12

real GDP is greater than potential real GDP

Question 13

negative output gap

Answer 13

real GDP is less than potential real GDP

Question 14

why is it difficult to measure the output gaps accurately

Answer 14

-hard to know maximum productive potential capacity of an economy
-rapidly rising prices can indicate a positive gap developing
-rising unemployment and slowdown in economic growth can indicate that there is a negative gap Is increasing

Question 15

economy more productive capacity in the short term why?

Answer 15

one cause workers willing to work overtime once full capacity is reached

Question 16

trade business cycle refers to

Answer 16

the changes in real GDP that occur in an economy over time

Question 17

four recognizable points in the cycle

Answer 17

peak/boom
slowdown/downturn
recession
recovery

Question 18

characteristics of a recession

Answer 18

-two consequetives quarters (6months) of negative economic growth
-increasing unemployment
-increase negative output gap
-spare production capacity
-low confidence for firms
-low inflation
-increase in gov expenditure ,, could lead to great budget deficit

Question 19

characteristics of a boom

Answer 19

-increased economic growth
-decreased unemployment
-decreased negative output gap
-spare production capacity is limited
-high confidence for firms
-increased inflation- demand pull
-improved gov budget ,, tax rev increase and expenditure falls

Question 20

benefits of economic growth

Answer 20

-increased income,, better standard of living
-decreased levels of absolute poverty
-improvement in quality/quantity of environmentally friendly technologies
-higher sales revenue,, greater profits
-increased investments ,, increased potential output of economy
-reduced expenditure by gov on benefits
-higher gov tax due to rising income/corporate profit
-increased employment

Question 21

cost of economic growth

Answer 21

-increased AD,, demand pull inflation,, purchasing power may fall
-lack of equity in distribution of income
-environmental damage by negative externalities of production
-increased inflation can harm export sales
-decreased export sales,, delay in investment by firms
-increased income,, greater consumption of demerit goods
-greater output requires more time of works ,, decreased leisure time and well being