Causes of Growth 2.5

Question 1

Growth

Answer 1

GDP increasing in a given time period

Question 2

Short Run Growth

Answer 2

If an economy is producing within its capacity (within its PPF) then Short Run Growth is possible without an increase in productive capacity, the economy just has to employ unused resources

Short Run Growth is achieved by increases to AD

Classical economists believe that measures to boost AD don’t always boost the country’s GDP, as they cause inflation, and that the economy will return to full employment output without AD measures

Question 3

Long Run Growth

Answer 3

An increase in LRAS. For this to happen needs an increase in one of the 4 factors of production (land, labour, capital, enterprise)

Question 4

Investment to boost AD

Answer 4

Investment can boost SR and LR growth as it is an important component of AD (For short run growth) and it boosts capital stock (for long run growth) . However, the investment must be wisely spent e.g. expensive inefficient machinery won’t boost the output or capacity much, same with machinery that workers must be trained to use properly

Question 5

Export Led Growth

Answer 5

Countries such as China, exports are 17.4% of Chinas GDP as of 2019.

But exports only directly boost Short Run Growth. However, the export earnings have been able to fund investment, which boosts AD (SR) and Capital Stock (LR). Thus chinas PPF has shifted outwards

Question 6

Land for Growth

Answer 6

Discovery of new resources. Saudi Arabia has experienced large growth almost purely through discovery of oil. Developing countries tend to grow the most from exploiting new resources

Question 7

Labour for Growth

Answer 7

Increase in quantity (working age, immigration) or quality (education so output per worker increases) of the workforce.

Question 8

Capital for Growth

Answer 8

Investment can improve technology or more machines

Question 9

Enterprise for Growth

Answer 9

Tax benefits & grants can incentivise business development.