2.5.1 Causes of growth Flashcards
Explain the impact of investment on economic growth
In the short run investment increases AD which increases real output. But in the long run an increase in investment increases the quantity of capital and increases the productive potential of an economy which shifts the LRAS outwards.
Explain the impact of innovation on economic growth
Innovation and improvements of technology will increase the productivity of labour (quality) and the the quality of capital which on turn shifts the LRAS outwards
Explain how migration affects economic growth
Migration will increase the quantity of labour and will increase the productive potential of an economy.
Explain how improvements in the health service or eduction will increase economic growth
These improvements would affect the quality of labour which increases the productive potential of the economy
Explain how changes in birth rates would affect economic growth
A decrease in birth rates will decrease the quantity of labour and reduce the productive potential but it would take several years to have any impact.
Explain how an increase in exports would affect economic growth
An increase in exports would increase the net trade sector of AD which would increases AD therefore resulting in economic growth.
Explain how the instability of government would affect economic growth
When governments are unstable firms confidence will decrease meaning they are less likely to invest which won’t cause economic growth
Explain how a credit crunch or a reduced access to finance may affect economic growth
This would reduce investment and decrease economic growth in the short and long run.
How might low savings constrain economic growth
If the saving rates are low then the bank won’t have the finance to lend to other businesses for investment which could cause a credit crunch resulting in reduced economic growth.
How might Primary Product Dependency constrain economic growth.
If a country is dependant on one product then the price tends to be volatile. This creates much business uncertainty and could cause a decrease in investment and therefore economic growth
How might having limited financial markets constrain economic growth
Financial markets provide products like savings accounts and business loans. Without these there would be little investment limiting economic growth
How might the quality of human capital constrain economic growth
If the capital is of a poor quality or is not very productive then they will be working below their maximum capacity which means there is little economic growth
How might capital flight constrain economic growth
If businesses spend their money abroad then there will be less money in domestic banks which could causes a credit crunch limiting economic growth.
How might corruption, conflict and poor governance affect economic growth
All these things make your country look less attractive to foreign investors which reduces economic growth.
How might limited access to foreign currency constrain economic growth
This can constrain the ability to import goods and raw materials which may be needed for development
