causes and impacts of growth Flashcards
What is long run growth illustrated by?
An increase in aggregate supply
This effect is shown to the right of the AS curve.
What are the factors that could increase potential output?
- A rise in investment by firms
- Improvements in technology
- A rise in immigration
- An improvement in training
- Improvements in infrastructure
Each factor contributes to an increase in the quantity or quality of the factors of production.
How does a rise in investment by firms affect real economic growth?
It leads to a rise in capital goods.
What impact does a rise in immigration have on potential output?
It increases the quantity and quality of labor.
What are the effects of improvements in training on potential output?
It improves the quality of labor.
How do improvements in infrastructure impact aggregate demand?
They increase aggregate demand and reduce costs for all firms.
What are the potential impacts of economic growth on households?
- Money incomes, real incomes, and disposable incomes will rise
- Higher household incomes due to more employment
- Households can afford more consumer durables
- Governments can spend more on healthcare, education, and housing
- Better standards of nutrition
- Elimination of poverty
How does economic growth impact firms?
- Sales will rise
- Business profits will rise
- Scope for introducing new products
- Entrepreneurs will be more successful
What is the impact of economic growth on government revenue?
More money coming in from taxes
This increases confidence in government financial management.
What additional benefits can arise from economic growth?
- More employment as jobs are created
- Funds available for environmental improvements
- Funds for research and development
- Better public services
What may sustainable growth require in terms of resources?
More resources devoted to investment and improving productive capacity
This may lead to less consumer spending in the short term.
What are the potential costs of sustainable growth?
- Inflation
- Income inequality
- Environmental costs
- Current account deficit
How has China’s economic growth model been characterized over the last three decades?
It has been investment- or export-driven.
What challenges has China faced in transitioning to a sustainable growth model?
The transition to a consumption-led growth model has proven difficult.
True or False: China’s economic growth strategy has been completely successful without any weaknesses.
False
What did Chinese optimists hope for after the global financial crisis?
A seamless transition to a sustainable domestic consumption-led growth model.
