3.1 Economic growth

Question 1

What is economic growth?

Answer 1

Economic growth is the increase in the gross domestic product (GDP) of a country over time. or in other words, the growth in value of output of a country

Question 2

What is GDP?

Answer 2

The value of output produced within a country in a year.

Question 3

What is the total value of output produced/ GDP equal to?

Answer 3

Equal to the total of incomes in an economy

Question 4

When there is economic growth what happens to incomes and output?

Answer 4

They both increase/rise

Question 5

What is the formula to calculate the rate of growth?

Answer 5

Rate of growth = change in GDP over original GDP x100

Question 6

How is GDP per capita calculated?

Answer 6

By dividing total GDP by population size, which gives the output per person, which is also average income per person

Question 7

What is GDP per capita?

Answer 7

It is simply the total GDP divided by the population

Question 8

What is the most common way of measuring the standard of living? and why?

Answer 8

by using the GDP per capita figures, as they show how much income people have to buy goods and services

Question 9

How is total GDP calculated?

Answer 9

By adding together the value of all output of goods and services

Question 10

What doe the GDP per capita give?

Answer 10

Gives the output per person, which is also average income per person

Question 11

When does a boom occur?

Answer 11

When economic growth is positive and high over a period of time

Question 12

When does a recession occur?

Answer 12

When economic growth is negative over a period of time.

Question 13

What would be the consequences of an economy entering recession?

Answer 13

When an economy enters into a recession, output falls, therefore less workers are needed since less is being produced, this leads to an increase in unemployment. This also means incomes fall, leading to a further fall in demand from the consumers who’s income had fallen

Question 14

Technically, when do economists say there has been a recession?

Answer 14

When GDP falls for 2 or more consecutive quarters (i.e. 6 months)

Question 15

What can economic growth be caused by?

Answer 15

Caused by an increased ability of an economy to supply goods and services

Question 16

What does the quality or quantity of the factors of production affect?

Answer 16

It affects the economies potential to produce goods and services.

Question 17

What is meant by supply-side factors?

Answer 17

The ways in which the economy’s ability to produce output can increase

Question 18

How may investment cause economic growth?

Answer 18

Investment is spending on capital goods by firms. Spending more money on improved capital means the equipment will be of better quality and so faster and more efficient then workers doing the job. machinery may also be used by workers to complete the job at a much fast rate, thus working more efficiently. This can all lead to the economy having the ability to produce
more goods and services in the future

Question 19

How may changes in technology cause economic growth?

Answer 19

Advances in tech can improve the quality of capital goods, this means the same amount of capital can make more goods and services. improved capital may also mean that a country can now use its other factors of production more efficiently.

Question 20

How can the size of a workforce cause economic growth?

Answer 20

The size of the workforce is the amount of people who are willing and able to work in an economy, this is the number of people who have jobs or are looking one. An increase in the number of potential workers in a country can mean that more can be made, this is because there is an increase in the factors of production.

Question 21

How can education and training cause economic growth?

Answer 21

Education and training can affect the quality and quantity of the work done. An increased spending in education may lead to more skilled workers in the future, these skilled workers will be more efficient and productive and can increase how many goods and services they make. Therefore, this increase in output could mean an increase in GDP and economic growth

Question 22

How can natural resources cause economic growth and economic growth decrease?

Answer 22

If a country finds new natural resources such as oil, it can either sell them to other countries or use them to make more goods and services, both of these can lead to an increase in output, GDP, and economic growth. A country may also face a decrease in its natural resources, such as a loss of land due to a rise in sea levels, this would mean that the country is unable to produce as much output therefore economic growth may decrease or become negative.

Question 23

How can government policies cause economic growth?

Answer 23

A government may have policies that affect specific markets or ones that impact the whole economy. One government intervention that may help the supply side of the economy is spending money on providing infrastructure, such as roads. Improved infrastructure makes it easier for producers to supply goods and services, by increasing their efficiency and lowering their costs. this can lead to an increase in output, GDP, and economic growth. Gov policies can also affect total demand within an economy and economic growth by imposing taxes.

Question 24

What are the benefits of economic growth?

Answer 24

• economic growth means an economy is able to make more output, therefore there are more choices for consumers, and a greater supply of goods and services available to buy which may lead to a decrease in prices and increase of living standards of consumers, on top of this it also means the average income of the population rises, this happens when GDP rises faster than the population so the GDP per capita also rises.
• More workers may be needed to make the extra output, which leads to more jobs, less unemployment and more tax revenue generated for the government as there will be more people paying taxes. The government can then use this money to improve the welfare of society by improving health care.
• An increased in tax revenues and a decrease in gov spending on unemployment benefits may improve the budget balance.

Question 25

What are the costs of economic growth?

Answer 25

• more production may create more pollution, harming the health of others.
• increased production may harm the environment e.g. water pollution kills fish.
• there will be more congestion as if outputs increase, more inputs and goods have to be transported around the country.
• More output means more use of non-renewable natural resources that may eventually run out, therefore the ability to produce in the future is reduced.
• Increased output may be achieves by an increase of pressure on workers which may result in them being more stressed.
• it may cause inflation as demand rises faster than supply, there is more competition between consumers for goods and prices may increase leading to inflation.
• It may result in inequality, as economic growth leads to increased average incomes, but there could be increased inequality if the increase in incomes is not evenly spread between all people, but instead only a few people get a large increase in their incomes.