2.5.1 - Causes of growth Flashcards
What is economic growth?
Economic growth is the increase in the real value of goods and services produced in a country or area as measured by the annual percentage change in real national output.
What is real GDP?
GDP is the monetary value of the national output of goods and services. Real GDP involves taking into accout inflation - where money GDP is adjusted for changes in the price level
What is aggregate demand?
The total demand for goods and services in the economy at a given time.
What is the formula for aggregate demand?
AD = C + I + G (X - M)
What graph is used to show short-run economic growth?
SRAS curve
Draw a SRAS curve
Page 176 in your theme 2 booklet for the right answer
What causes long-run growth in the economy?
A change in quantity or quality of the factors of production.
What are the factors of production?
*remember CELL
Capital, land, labour and enterprise
What’s the definition of the production possibility frontier
A PPF shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed;
What does PPF stand for?
Production possibility frontier
Draw a production possibility frontier
Page 177 in your theme 2 booklet.
Name a cause of short-run economic growth
- Aggregate demand
- Aggregate supply
What is aggregate supply?
Aggregate supply measures the volume of goods and services produced each year.
What 2 graphs can be used to show long-run economic growth?
- Classical LRAS curve
- PPF curve
How do you draw a classical LRAS curve?
Page 178
Name 2 factors which have an effect on economic growth.
- Investment
- Innovation
- MIgration
- Immigration (Emigration will have the opposite effect)
- Changes in birth rates
- Increases in productivity
- Export-led growth
How does export-led growth have an effect on economic growth?
Export-led growth will lead to greater investment in capital goods (in order to produce the goods and services which are demand by other countries) leading to a greater productive capacity
How does productivity have an effect on economic growth?
An increase in productivity will mean that capital and labour are being used more effectively with increased output for the same input.
Name 2 constraints on economic growth
- An abscence of capital markets
- Instability of government
How does haveing an unstable governement have an effect on economic growth?
An unstable government will lead to short-term decision making that will have an impact of investment from the governement themselves. As regimes change change frequently so do thier policies. This does not provide businesses from within, and outside, a coutry with the confidence to invest.
How does having an abscence of capital markets affect economic growth?
An abscence of capial markets in some countries means that it is harder raise finance required for investment. This is often cited (mentioned) to lack of economic development in african countries.
How does an inccrease in the circular flow of income have an effect of aggregate demand?
Injections into the economy will create an increase in AD and therefore, an increase in economic growth. he size of the increase will depend on the multiplier effect. Injections will also provide the investment required for capital goods.
This will lead to an increase in productive capacity.
How does a decrease in the circular flow of income have an effect on economic growth?
Withdrawals will cause a reduction in AD and therefore, a decrease in economic growth. The size of the decrease will depend on the multiplier effect. Withdrawals will also reduce the finance available for the investment required for capital goods. This will lead less growth of productive
capacity.
Why is it important that governments find a blance between short-run and long-run economic growth policies?
- It is important that the government find a balance between short-run and long-run economic growth policies
- Stimulating the demand-side of the economy is vital, but if supply-side of the economy remains constrained, high levels of inflation are likely to occur.
- Equally, focusing on improving the supply-side of the economy will have limited effect if the demand-side of the economy is suppressed. There will likely be significant spare capacity and unused resources.
- However, the enhancement of the supply-side of the economy has significant time-lags attached, and not all capital investment yields the desired improvements in productive efficiency
