42 : Economic Growth and Sustainability

Question 1

2 types of economic growth

Answer 1

1. Actual EG - output increase due to greater use of existing resource
2. Potential EG - increase in maximum output (rise in productive potential)

Question 2

Define output gap

Answer 2

Difference between actual and potential ER
+ = Real GDP > potential GDP
- = Real GDP < potential GDP

Question 3

State the phases of business cycle

Answer 3

Boom
Recession / Downturn
Trough
Recovery / Upturn

Question 4

Define economic shock

Answer 4

An unexpected/ unpredictable event that affects the economy

Question 5

What 2 ways can shocks be categorised

Answer 5

1. Demand side / Supply side
2. Positive / Negative

Question 6

Give 2 supply side shocks from Covid 19

Answer 6

1. fall in productivity due to disruspted economic supply chains, temporary business closure, increasing business backruptcies
2. fall in business investment due to confidence loss

Question 7

Positive demand side shocks caused by

Answer 7

1. IR decrease
2. Gov spending increase
3. ER depreciate
4. Consumer boom
5. Increasing confidence
6. Multiplier + accelerator effect

Question 8

Negative supply side shocks caused by

Answer 8

1. No tech advance
2. Raw material price increase
3. Natural disaster / Covid 19
4. Wages increase/ business tax/ ER

Question 9

Roles of Automatic Stabilisers

Answer 9

Offset fluctuations in economic activity
-reduce AD during boom
-increase AD during recession

Question 10

Policy to promote economic growth

Answer 10

SR - expansionary fiscal/ monetary
LR - interventionist supply side / market based supply side

Question 11

Example of interventionist supply side

Answer 11

Subsidies
Direct provision

Question 12

Example of market based supply side

Answer 12

Lower tax
Reduce benefits
Privatisation/ deregulation

Question 13

Disadvantage of EG policy - SR fiscal/ monetary

Answer 13

Demand pull inflation

Question 14

Disadvantage of EG policy - LR supply side

Answer 14

cost
time lag

Question 15

Define Inclusive Economic Growth

Answer 15

EG that is distributed fairly across society and creates opportunities for all

Question 16

Impact of EG on equity/equality

Answer 16

Widening of income equality
-pay gap
-gig economy
-skilled labour higher demand
-new industries created may cause labour immobility

Question 17

How to solve problems with pay gap?

Answer 17

-redistribution of income using progressive tax or transfer payment

Question 18

How to solve problems with gig economy?

Answer 18

Trade union/ legislation (labour rights)
Anti discrimination legislation (no groups excluded from benefits)
Legislation against slavery or child labour (no exploitation of vulnerable groups)

Question 19

How to solve problems with low skilled labour less demand?

Answer 19

Improve access to quality education

Question 20

How to solve problems with labour immobility?

Answer 20

Improve transport or communication links (reduce regional difference in income)
Improve access to education

Question 21

Define Sustainable Economic Growth

Answer 21

Economic growth that doesn’t threaten future generation’s ability to experience economic growth

Question 22

How to achieve Sustainable economic growth

Answer 22

• Increase quality of growth (labour/ tech)
• Prevent exploitation (conserve) of natural resources

Question 23

How to increase quality of economic growth

Answer 23

provide access to quality education, housing, healthcare
innovation/ tech advancement

Question 24

How to conserve natural resources

Answer 24

subsidy cleaner sources of energy
plant tree
provide information
restrict consumption or production of certain product (eg plastic bag)
tax firms that create pollution
pollution permits

Question 25

Implications of economic growth on environment

Answer 25

global warming
pollution
greenhouse gases
habitat loss