Ch27 Economics Growth And Welfare

Question 0

What are 3 benefits of growth?

Answer 0

Employees - rise in income and wealth leads to less poverty and higher SofL.

Firms - make more profit, can reinvest this to grow company or increase quality of capital (technological improvements)

Governments - less money going to benefits, more money coming in from tax, therefore healthier fiscal position

Question 1

What are 4 other indicators of SofL other than NI and economic growth?

Answer 1

Political freedoms
Social and cultural environment
Freedom from fear of violence
The working environment

Question 2

What 5 arguments are there against growth?

Answer 2

Falsity in NI measures
Negative externalities
Growth is unsustainable
Increasing inequality
Social dislocation and stress

Question 3

Define sustainable growth?

Answer 3

Growth in the productive potential of the economy today which does not lea to a fall in the productive potential of the economy for future generations.

Question 4

What is the difference between actual growth and potential growth?

Answer 4

Actual growth = increase in real GDP
Potential growth = increase in capacity

Gap is called output gap

Question 5

If the economy is growing faster than the trend, what does this mean and how can it be corrected?

Answer 5

It means there is a positive output gap, meaning the economy could be overheating and the inflationary pressures might cause the BofE MPC to raise interest rates.

Question 6

What constraints are there on growth?

Answer 6

-absence of capital markets
-government to instability (fiscal deficit etc)
-labour market problems
As countries get richer, birth rates fall, labour force gets smaller, increased immigration allowed - immigration of skilled workers from low income countries, meaning low income countries continue to struggle due to no skilled workers.
-external constraints (eg. Tariffs)