2.5.1 Causes of Growth

Question 1

What is short-run economic growth

Answer 1

is an increase in the real GDP

i.e. increase in actual out

Question 2

How could economic growth be shown on a Keynesian AD/AS diagram

Answer 2

Expansion in the AD curve from AD to AD₁

Question 3

How can short-run economic growth be shown on a PPF

Answer 3

Shift closer to the PPF

PPF also shows LRAS

Question 4

What factors cause short-run economic growth

Answer 4

1. Interest rates decreasing (Expansionary Monertary)
2. Expansionary Fiscal policy
3. Commodity prices - oil, gas, food
4. Currency depreciation - increasing exports
5. Consumer + Business confidence

Question 5

What is Long-run economic growth

Answer 5

potential growth

sustained increase in a country’s productive potential

Question 6

How would you show Long-run economic growth on a Keynesian AD/AS diagram

Answer 6

Expansion in the LRAS

Question 7

How would you show long-run economic growth on a PPF diagram

Answer 7

Expansion in the PPF

Also seen as the LRAS

Question 8

Factors that cause long-run economic growth

(LIFE)

Answer 8

Labour Supply

Investment

F - Productivity and Research and development + innovation

Enterprise

Question 9

What is export lead growth (short-run)

Answer 9

Where a significant part of the expansion of real GDP, jobs and per-capita income flows from the successful exporting industries

Increase in (export-import) as GDP

Question 10

What Nations have lead from export lead growth

Answer 10

China, Ireland, South Korea, Singapore, Hong Kong + Ethiopia

Question 11

Advantages of Export lead growth

How will it affect AD and growth?

Answer 11

1. Exports = injections into circular flow = increased AD. Increased AD with shift equilibrium to the right, causing higher GDP and national output. This should increase income and wealth
2. Increase profits + revenue of exporting firms. Increase in the marginal propensity to Invest. Increase in long-run economic growth and AD

Question 12

Disadvantages of export-lead growth

Answer 12

1. Over-dependence in the economic cycles of importing countries
2. Protectionism response of importing nations, which may find an imbalance between trading benefits
3. Dip in domestic living standards and weak domestic market
4. Demand-pull inflation - higher interest rates meaning an application in the currency and less competitive exports
5. Extraction of natural resources