2.5.1- Causes Of Growth Flashcards
What are the factors that affect economic growth?
-changes to the FOP
-technology
-efficiency
How do changes to land cause economic growth?
-discovery of new resources will increase economic growth
-developing countries tend to grow the most from exploiting new resources
What is an example of a developing country who grew due to developing new resources?
Saudi Arabia has experienced large growth due to their discovery of oil
How do changes to labour cause economic growth?
An increase in the quality or quantity of labour will improve economic growth
How can changes in the size of the workforce come from?
Immigration, demography (age profile) or participation rates
How do changes to capital cause economic growth?
If a country receives sustained investment, they will be able to access or develop new technology to improve productivity
How do changes to enterprise cause economic growth?
-if a gov offers tax benefits and grants they will encourage the development of businesses
-if there’s too much wealth distribution (high taxes and benefits), there will be little incentive to work hard so businesses won’t invest
How do changes to technological progress cause economic growth?
-improved technology means that average cost of production is lower
-creates new products for the market which keeps MPC high as there are new things to buy
How do changes to efficiency cause economic growth?
-less resources are needed to produce each good so more goods can be produced
How can countries keep efficiency?
The government can keep up competition to force producers to lower prices or increase quality
Why can’t some countries be efficient?
-may not have an efficient capital market (banks) to get loans
-may experience wars or natural disasters so assets are destroyed
-in a communist society, there is a lack of efficiency as the gov is the only supplier so isn’t motivated to cut costs
What is actual growth?
The percentage change in GDP
What is potential growth?
The change in productive potential of an economy over time
What is potential growth determined by?
The factors of production
How does AD affect growth?
Through export led growth
