4.1-3 Growth and Development Basics Flashcards
What is actual SR growth?
Increase in real GDP of a given time.
What is potential LR growth?
Increase in capacity.
Increase in production possibility.
What are the main problems with growth?
It isn’t sustainable.
Demand Pull inflation.
Shortages occur when not keeping with increased demand
More factories - more population - more waste.
What are the main sources of growth?
Natural = discover more resources
Human = more/more skilled people
Capital = Better/More access to technology
Institutions = Political Stability, Banking, Property Rights
What is development?
Standard of living/quality of life.
How does one measure development?
Human Development Index
and/or
National Income per Capita (GNI)
In order what is the left side of the poverty cycle?
Growth =
Low saving
Low investment
Low Growth
In order what is the right side of the poverty cycle?
Development =
Low healthcare/education
Low human capital
Low Productivity
Define economic growth
Increase in real GDP over a period of time.
Define sustainable development
Improvement in standard of living today that does not compromise the standard of living in the future.
Explain why merit goods are being under consumed.
Q2 is the socially optimum consumption
But Q1 is the free market therefore there is underconsumption.
Because MSB > MPC because of MEC
Market does not take into account MEC and so produces DWL (shaded area)
Why might growth result in inflation?
Growth causes an increase in AD
Increase in real GDP
Increase in Prices
No response in AS
Demand pull inflation
Why does environmental degradation cause market failure?
Environmental Degradation is a negative externality in production.
Q2 is socially optimal
Q1 is free market which is below optimal.
MSC > MPC because of MEC
Market does not take into account MEC and produces DWL (shaded area)
How is lack of infrastructure a barrier to growth?
Decrease in productivity
Decrease in AS
Decrease in productive capacity.
Low Income
How does a lack of international markets act as a barrier to growth?
Without international markets (X-M) decreases.
Decreasing AD
Less GDP
Low income
Low growth
Low levels of healthcare acting as a barrier to development?
Low healthcare
People become unwell = Low human capital
People don’t work because unwell =Low productivity
Low Income
Low development
Low levels of education acting as a barrier to development?
Low education
People are untrained = Low human capital
People can’t work as fast because untrained =Low productivity
Low Income
Low development
How does high levels of gender inequality become a barrier to development?
Women don’t have proper education
Women don’t have knowledge of healthcare
Impact human capital of them and their family members
Less productivity because worse human capital and women don’t work = fewer workers
Low income
Why are informal markets a barrier to development?
Markets not controlled by government are not policed the same, and worked could be in bad conditions / no health or safety equipment
Human capital lowers because of these conditions
Productivity lowers
Low Income
ALSO
No tax revenue - no infrastructure etc.
Why are informal markets a barrier to growth?
No tax revenue for government
No government spending on infrastructure.
Decrease in productivity
Decrease in AS
Decrease in productive capacity.
Low Income
When answering a question about G and D using AD/AS diagram.
Write up AD = C+I+G+(X-M)
AD and AS diagram
When answering questions about poverty cycles remember…
You need to explain WHY x lowers.
When answering a G+D 15 marker…
DEFINE = Development + HDI, + AD=C+I+G+(X-M)
A-B-C-D
Poverty cycle diagram
Evidence from source with reasoned arguments
What is Foreign Direct Investment?
Investment for expanding productive capacity in the long run by buying out existing firms overseas by a foreign country or firm.
When answering an FDI 15 marker.
Quotations
Definitions = Development/Growth/HDI
Inflation, Subsidies, Market Failure, Merit Good, Gov. Intervention AS NEEDED
Diagram = AD/AS or Poverty Cycle
Evaluation = SR, LR, Stakeholders, +/-
Conclusion/synthesis.
How does FDI help development?
^ education ^ training ^ productivity ^ income
^ infrastructure ^ productivity ^ AS ^ income
How does FDI help growth?
v savings gap ^ investment ^ AD ^ income
What are the positives of FDI?
More training
Domestic economy improves
More jobs
What are the negatives of FDI?
Profits go to other firm/country
Pollution
What is the effect of FDI in SR?
Investor loses
Invested gains
What are the effects of FDI in LR?
Investor gains
Invested loses.
How are stakeholders affected by FDI?
Government = ^GDP ^Tax ^Spending
Consumers = more stuff = lower prices
Producers = profits go to other country
