2.5.1 Causes of economic growth

Question 1

Short-run economic growth
(Actual growth)

Answer 1

Occurs when there is an increase in the quantity of goods/services produced in an economy over a given period of time.
It is measured by the percentage change in real national output (real GDP).

Question 2

Long-run economic growth
(potential growth)

Answer 2

Caused by an increase in the capacity (productive capacity) of the economy.

This usually happens due to a rise in the quality/quantity of inputs (factors of production) – for example, more advanced machinery or a more highly skilled labour force.

Question 3

How is short-run growth shown on a PPF?

Answer 3

Short run growth is shown by a movement from point A to point B, whilst the PPF itself remains fixed.

Question 4

How is long-run growth shown on a PPF?

Answer 4

Long run growth is shown by a shift outwards of the PPF. (An increase in the capacity of an economy).

Question 5

Export-led economic growth

Answer 5

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

• Net exports is a component of aggregate demand (AD).
• For many developing countries, their exports represent a high percentage of the annual AD and gross domestic product (GDP). When the value of the exports rise, the real GDP rises significantly - and vice versa

Question 6

Supply side causes of economic growth

Answer 6

• Increased investment
• Higher labour productivity
  -Increase in labour force
• Improved technology

Question 7

Short run economic growth shown on a supply/demand diagram

Answer 7

This is illustrated on an AD/AS diagram by a rightward shift in AD.

Question 8

Long run economic growth shown on a supply/demand diagram

Answer 8

This is illustrated on an AD/LRAS diagram by a rightward shift in LRAS.