2.5.1 Causes of growth

Question 1

Explain short-run economic growth?

Answer 1

Changes to any of the components of aggregate demand (AD) will cause short-run economic growth to occur. This is illustrated on an AD/AS diagram by a rightward shift in AD. It can also be illustrated by using the production possibilities frontier model by moving from a point inside the curve to a point closer to the curve.

Question 2

Explain long-run economic growth?

Answer 2

Long-run economic growth is caused by any improvements to the quality or quantity of the factors of production. These factors include all of the determinants of long-run aggregate supply.

Question 3

What is actual growth?

Answer 3

Actual economic growth occurs when there is an increase in the quantity of goods/services produced in an economy in a given period of time. This is often measured by the percentage change in real gross domestic product (GDP).W

Question 4

What is potential growth?

Answer 4

Potential growth is the increase in the productive potential of an economy as demonstrated by a shift outward of the production possibilities frontier (PPF) or the long-run aggregate supply (LRAS) curve.

Question 5

What is export-led economic growth?

Answer 5

Export-led economic growth refers to 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).