4.6 Economic growth Flashcards
Define Gross Domestic Product (GDP). [2]
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].
How is economic growth measured? [2]
By using the real GDP or GDP per head.
Define nominal gross domestic product. [2]
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].
Define consumption. [1]
Consumption is the value of all private household consumption [1] within a country.
Define investment expenditure. [1]
Investment expenditure is the sum of capital spending [1] by all businesses within a country.
Define government spending. [2]
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.
Define export earnings. [1]
Export earnings measures the monetary value of all exports sold to foreign buyers [1].
Define import earnings. [1]
Import earnings measures the monetary value of all payments for imports [1].
How do we measure the GDP of a country? [1]
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].
How do we calculate GDP per capita? [1]
It is calculated by the formula of total GDP divided by the total population of the country [1].
Define business cycle. [1]
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].
What are the demand-side shocks which cause recession? [3]
- Falling consumer and business confidence
- Higher interest rates
- Increased rate of unemployment
What are the supply-side shocks which cause recession? [3]
- Bad weather
- Worker strikes
- Poor agriculture harvest
What are the consequences of recession? [3]
- Higher unemployment
- Lower wages
- Reduced investments
Why does recession cause higher unemployment? [3]
Because government need to support unemployed people [1], and business have lower profit [1] which they have to reduce the workforce [1].
Why does recession cause lower wages? [3]
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.
Why does recession cause reduced investments? [2]
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].
What are the causes of economic growth? [6]
- Nature resources
- Labour force
- Labour productivity
- Technology
- Infrastructure
- Investment expenditure
How does the labour force cause economic growth? [2]
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].
How does investment expenditure cause economic growth? [2]
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].
What are the positive consequences of economic growth? [3]
- Improved standard of living
- Higher employment
- More tax revenues
What are the negative consequences of economic growth? [4]
- Environmental consequences
- Higher risk of inflation
- Create inequalities in wealth
- Loss in natural resources
How can the use of fiscal policy promote economic growth? [2]
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].
How can the use of monetary policy promote economic growth? [2]
The government can reduce the interest rate [1] which encourage people to save less, spend more and borrow more [1].
How can the use of supply-side policy promote economic growth? [2]
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.
What are the benefits of economic growth? [6]
- Higher standard of living
- Higher level of income
- Better healthcare and education
- Higher life expectancy
- Better infrastructure
- Lower poverty levels
