CH25 Economic growth

Question 1

What is macroeconomics?

Answer 1

The study of large economic systems such as those of a whole country or area of the world

Question 2

What is economic growth?

Answer 2

An increase in the level of output by a nation

Question 3

What is national income?

Answer 3

The value of income, output or expenditure over a period of time

Question 4

What are the 6 Macroeconomic objectives

Answer 4

-Reducing Unemployment
- Protecting the environment
- Having a current account surplus (Balance of payments)
- Economic growth
- Controlling inflation (Healthy rate is around 2-4%)
- Redistribution of income

Question 5

What is GDP?

Answer 5

Market value of all final goods and services produced in a year

Question 6

What is the equation for AD

Answer 6

C+I+G + (X-M)

Question 7

What do the words in the C+I+G + (X-M) equation mean?

Answer 7

C= Consumption
I = Investment
G = Government spending
X= Exports
M = Imports

Question 8

How is inflation a limitation of GDP as a measurement of growth?

Answer 8

-Price increases can mean growth rates are misleading E.g If the economy grows by 2.6% and prices increase by 2.6%, this means the economy hasn’t grown
- This problem can be overcome by using Real GDP which adjusts GDP for inflation

Question 9

How do you calculate real GDP?

Answer 9

Nominal GDP - Inflation = Real GDP

Question 10

What is nominal GDP?

Answer 10

How much value is one person contributing to the economy

Question 11

How is Population changes a limitation of GDP as a measurement of growth?

Answer 11

-E.G If GDP grows by 2.8% and the population also grows. The growth in population will offset the increase of GDP, GDP will then be harder to calculate.
The problem can be overcome by calculating GDP per capita

Question 12

How do you calculate GDP per capita?

Answer 12

Nominal GDP/ Population = GDP Per capita

Question 13

How is the value of home produced goods a limitation of GDP as a measurement of growth?

Answer 13

Home produced goods (E.g Food, home knit clothes, vegetables grown in the garden) aren’t reported to the government. If such activities aren’t recorded, the value of national income is underreported.

Question 14

How is the hidden economy a limitation of GDP as a measurement of growth?

Answer 14

Markets like the black market or parallel markets don’t record their transactions, so the value of national income is underreported. Most of these products will be illegal

Question 15

What is a parallel market?

Answer 15

A market is a secondary market where you can still access the goods. It is where 2 markets one legal and one illegal operate at the same time

Question 16

How is the GDP and living standards a limitation of GDP as a measurement of growth?

Answer 16

GDP is used to measure living standards. But just because GDP rises, it doesn’t mean living standards would automatically rise with it. (E.g Luxembourg have a GDP per capita of 100,000 but not everybody makes 100,000)

Question 17

What is the business cycle?

Answer 17

It describes the upturns and downturns in the level of GDP over time

Question 18

What is on the X and Y axis of the business cycle?

Answer 18

Y = Economic growth
X = Time

Question 19

What is a boom?

Answer 19

-It is a period in which the economy experiences a period of extended economic growth
- Demand is rising
- Jobs are created (Unemployment falling)
- Profits made by firms increasing
- But prices may be rising

Question 20

What is a downturn?

Answer 20

• A period where the economy is still growing but at a slowing rate (The graph begins to slope downwards)
• Demand for goods and services fall
• Unemployment starts to rise

Question 21

What is a recession?

Answer 21

• A economy experiences decreased economic growth for 2 consecutive quarters (6 months)
• Unemployment due to high levels of business failiure
• Declines in household income and business profits
• increased government spending on welfare benefits

Question 22

What is a recovery?

Answer 22

• A period of increasing rates of economic growth (Graph begins to rise again)
• Demand starts to rise due to income levels rising
• Unemployment starts to fall due to increased production from the higher demand

Question 23

What are the impacts of economic growth?

Answer 23

Increased Employment due to inceased output
Higher Standards of living: People have more income
Reduce Poverty: more jobs and more government spending
Increased Productive potential
Increased Inflation: Demand rising too fast, leading to prices to increase
Damadge to The enviornment: negative externalities from buying due to increased output

Question 24

What are the impacts of economic growth on employment?

Answer 24

Economic growth is the result of businesses generating more output, as businesses increase output they will need more workers to fill the job spaces. Therefore economic growth will increase employment rates

Question 25

What are the impacts of economic growth on standards of living?

Answer 25

Economic growth means that on average, people have more income. With more disposable income, people can spend more on goods and services. People can therefore afford better quality goods and services in forms of food, healthcare, housing and leisure goods. Therefore economic growth leads to higher standards of living

Question 26

What are the impacts of economic growth on poverty?

Answer 26

As economic growth leads to increased employment, more people in poverty can get employed and therefore earn more money. In addition, economic growth leads to more money to the government in which they can spend more on welfare services aimed at reducing poverty

Question 27

What are the impacts of economic growth on productive potential?

Answer 27

Economic growth leads to higher productive potential of a country. This means a country can produce more goods and services. The PPC will undergo a shift to the right

Question 28

What are the impacts of economic growth on inflation?

Answer 28

If economic growth is too fast, this could cause increased inflation. This is because demand rises too fast, causing prices and imports to rise.

Question 29

What are the impacts of economic growth on the enviornment?

Answer 29

As the economy grows, more goods are purchased which all have an environmental footprint. For example, when the economy grows, more people will buy cars, leading to increased emissions and negative externalities. This is known as unsustainable growth