Causes of Growth

Question 1

What is economic growth?

Answer 1

An increase in the productive potential of an economy. Any increase in AD or LRAS will result in actual or potential economic growth.

Question 2

How is actual/real economic growth measured in the short-run?

Answer 2

The change in real national output (GDP).

Question 3

What is the cause of potential growth?

Answer 3

An increase in the capacity of the economy - a rise in the quality or quantity of the factors of production.

Question 4

What is export-led growth?

Answer 4

International trade, which allows for an economy to raise AD through trade with other nations. An increase in exports is an injection into the circular flow of income, which can be used as an investment to fuel further potential economic growth.

Question 5

What are the two factors influencing actual growth?

Answer 5

1) An increase in AD.
2) An increase in SRAS.

Question 6

What factors can cause AD to rise (4)?

Answer 6

1) Consumption.
2) Investment.
3) Government spending.
4) Exports.

Question 7

What causes an increase in SRAS?

Answer 7

A decrease in costs of production. E.g. a fall in oil prices/taxation/wage rates or a rise in exchange rates.

Question 8

What influences potential growth?

Answer 8

An increase in LRAS through the increase in the factors of production. E.g. Through technological advances, an increase in the size/skill of the labour force, investment in capital goods/infrastructure or the growth in enterprise.