4.6 Economic growth

Question 1

Define Gross Domestic Product (GDP). [2]

Answer 1

Gross Domestic Product measures the monetary value of goods and services produced within a country [1] for a given time period, usually one year [1].

Question 2

How is economic growth measured? [2]

Answer 2

By using the real GDP or GDP per head.

Question 3

Define nominal gross domestic product. [2]

Answer 3

Nominal gross domestic product measures the monetary value of goods and services produced within a country [1] during a given time period, usually one year [1].

Question 4

Define consumption. [1]

Answer 4

Consumption is the value of all private household consumption [1] within a country.

Question 5

Define investment expenditure. [1]

Answer 5

Investment expenditure is the sum of capital spending [1] by all businesses within a country.

Question 6

Define government spending. [2]

Answer 6

Government expenditure is the total consumption and investment expenditure of the government [1], but it doesn’t count for payments made to people with no output [1], such as unemployed people.

Question 7

Define export earnings. [1]

Answer 7

Export earnings measures the monetary value of all exports sold to foreign buyers [1].

Question 8

Define import earnings. [1]

Answer 8

Import earnings measures the monetary value of all payments for imports [1].

Question 9

How do we measure the GDP of a country? [1]

Answer 9

It is measured by the formula of consumption plus investment expenditure plus government spending plus net export, which is export earnings minus import earnings [1].

Question 10

How do we calculate GDP per capita? [1]

Answer 10

It is calculated by the formula of total GDP divided by the total population of the country [1].

Question 11

Define business cycle. [1]

Answer 11

The business cycle describes the fluctuations in the economics activity of a country over time [1], creating a long-term economic growth in the country [1].

Question 12

What are the demand-side shocks which cause recession? [3]

Answer 12

• Falling consumer and business confidence
• Higher interest rates
• Increased rate of unemployment

Question 13

What are the supply-side shocks which cause recession? [3]

Answer 13

• Bad weather
• Worker strikes
• Poor agriculture harvest

Question 14

What are the consequences of recession? [3]

Answer 14

• Higher unemployment
• Lower wages
• Reduced investments

Question 15

Why does recession cause higher unemployment? [3]

Answer 15

Because government need to support unemployed people [1], and business have lower profit [1] which they have to reduce the workforce [1].

Question 16

Why does recession cause lower wages? [3]

Answer 16

Because people have less consumer spending and they only spend on necessities [1], which reduces the government tax revenues [1], government has to think of stopping services which increase the spending on welfare [1] to support people.

Question 17

Why does recession cause reduced investments? [2]

Answer 17

Because the confidence levels of businesses are low [1], they are worried about the economy, therefore they invest less, which further pushes the economy into recession [1].

Question 18

What are the causes of economic growth? [6]

Answer 18

• Nature resources
• Labour force
• Labour productivity
• Technology
• Infrastructure
• Investment expenditure

Question 19

How does the labour force cause economic growth? [2]

Answer 19

A country which has more occupationally or geographically mobile workers are more likely to have an economic growth [1], because they are able to relocate inside the country [1].

Question 20

How does investment expenditure cause economic growth? [2]

Answer 20

A country which has more investments from businesses are more likely to have an economic growth [1], because they take risks on investing which might cause a growth in the economy [1].

Question 21

What are the positive consequences of economic growth? [3]

Answer 21

• Improved standard of living
• Higher employment
• More tax revenues

Question 22

What are the negative consequences of economic growth? [4]

Answer 22

• Environmental consequences
• Higher risk of inflation
• Create inequalities in wealth
• Loss in natural resources

Question 23

How can the use of fiscal policy promote economic growth? [2]

Answer 23

The government can reduce the level of taxation [1] in order to boost the level of economic activity, which people will spend more and businesses will invest more [1].

Question 24

How can the use of monetary policy promote economic growth? [2]

Answer 24

The government can reduce the interest rate [1] which encourage people to save less, spend more and borrow more [1].

Question 25

How can the use of supply-side policy promote economic growth? [2]

Answer 25

The government can reduce the level of corporate taxes [1] which encourage firms to invest more, which increases the country’s productive capacity [1] and cause economic growth.

Question 26

What are the benefits of economic growth? [6]

Answer 26

• Higher standard of living
• Higher level of income
• Better healthcare and education
• Higher life expectancy
• Better infrastructure
• Lower poverty levels