3.1 Economic Growth Flashcards
1
Q
Economic growth definition
A
Economic growth is the increase in the value of output (GDP) over time
2
Q
GDP Definition
A
The total value of all goods and services produced with in an economy in a given year
3
Q
How to measure economic growth calculation
A
Rate of growth (%) = change in GDP/ Orginal GDP x 100
4
Q
Causes of economic growth
A
- increase in aggregate demand (short run)
- in increase in productive capacity of the economy (long run)
5
Q
Causes of increase Long-run economic growth
A
Anything that increases the quantity and quality of Land, labour, capital, enterprise, therefore increasing the productive capacity and long-run economic growth
6
Q
Aggregate demand equation
A
AD = C + G + I + (X-M)
C = consumer spending
G = government spending
I = firms spend on capital goods
X - M = net exports
7
Q
Benifits of economic growth
A
- leads to a rise in the standard of living, due to higher incomes, due to higher output, greater demand for labour, rise in wages, households can afford to purchase more G+S
- decrease in unemployment, due to increased output leading to an increase in demand for labour, increased wages, reward for working is higher than benefits.
- increased tax revenue for governments, higher incomes lead to more income tax revenue, increased spending leads to more money from VAT
8
Q
Costs of economic growth
A
- increased pollution, due to higher levels of production, less environmental sustainability
- increasing income inequality, increases in income may only go to high income earners, increasing the income distribution
- increased inflation, levels of demand outstrip productive capacity causing firms to raise prices, or wages increase so firms have to increase prices to maintain profit levels
- increased unemployment if increased output is driven by replacing labour for more productive capital
9
Q
Eval Economic growth
A
Depends on:
- size of the economic growth
- duration of growth
- cause of growth
