2.5.1 - Causes Of Growth

Question 1

What Is Economic Growth?

Answer 1

Increase in real GDP in an economy in a year, caused by an increase in AD or an increase in LRAS.

Question 2

What Will Cause Short-Run Growth / Actual Growth?

Answer 2

An increase in AD, when an economy uses spare capacity to increase real GDP.

Question 3

What Can Be Used To Illustrate Short-Run Growth?

Answer 3

AD shifting right.

Question 4

What Else Can Be Used To Illustrate Short-Run Growth?

Answer 4

PPF.

Question 5

What Are Causes Of Short-Run Growth?
(5 Points)

Answer 5

~ Lower interest rates.

~ Lower income / corporation tax.

~ Higher consumer / business confidence.

~ Higher government spending.

~ Weaker exchange rate.

Question 6

How Is Lower Interest Rates A Cause Of Short-Run Growth?
(3 Points)

Answer 6

~ Makes it cheaper for consumers to borrow (C).

~ Makes it cheaper for business to borrow to invest (C+I).

~ Weakens the exchange rate (X-M).

Question 7

When Does Long-Run Growth / Potential Growth Occur?
(2 Points)

Answer 7

~ When there is an increase in LRAS.

~ Increase in the productive potential of the economy.

Question 8

What Can Be Used To Illustrate Long-Run Growth?

Answer 8

Keynesian shifting right.

Question 9

What Causes The LRAS Curve To Shift Right?
(2 Points)

Answer 9

~ Increase in Q2 of FOPS.

~ Increase in the PE, reduction of LR costs of production.

Question 10

What Are Causes Of Short-Run Growth?
(5 Points)

Answer 10

~ Increase in labour productivity.

~ Increase in the workforce size, via an increase in immigration.

~ Investment, increases the Q2 of capital.

~ Infrastructure improvements, easier to access and transport raw materials leading to lower costs of production.

~ Increase competition.

Question 11

What Is Export-Led Growth?

Answer 11

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