Chapter 29 Economic Growth

Question 1

Define economic growth

Answer 1

an increase in real output over time

Question 2

Positives of Economic Growth (2)

Answer 2

Increased living standards
- more production of goods/services
- increased income with which to buy those goods and services

More taxable economic activity
- More profits - corporation tax
- more income - income tax
- more spending - sales tax

Question 3

negative consequences of economic growth (4)

Answer 3

Depletion of natural resources

Inflation
- increased employment —> increased income —–> increased demand —> increased price —-> if suply cannot meet demand, U GET INFLATION LOL

Can lead to trade defeciit
- spend more on imports than exports

Inequitable distrubution of income

Question 4

What is the circular flow of income

Answer 4

the movement of expenditure, income and output around the economy

Question 5

Explain the circular flow of income

Answer 5

Firms produce goods and services —> consumers spend on good/services, leading to revenue for firm —-> factor incomes given back to FoP —-> Factor services return to firms

Question 6

What are the different ways of measuring output (3)

Answer 6

Expenditure approach
- measures all expenditure in an economy

Output approach
- measures the value of all final output by firms

Income approach
- All income earned by households

Question 7

What does the circular flow of income tell us

Answer 7

national income = national output = national expenditure

Question 8

What is real GDP

Answer 8

nominal GDP adjusted for inflation

Question 9

What is GDP per capita

Answer 9

GDP / population

Question 10

Difficulties measuring real GDP (3)

Answer 10

Existanec of black market
- This activity cannot be measured
- Tax revenue is lower than what it could be

Fails to to measure the degree of income inequality

Doesnt take into account quality of life

Question 11

What are the causes of recessions? (2)

Answer 11

Demand side shocks (factors that cause an unexpected fall in total spending)
- War
- Financial crisis -
- “Animal Spirit” - people think there will be recession so it really happens

Supply side shocks (factors that cause an unexpected increase in firm’s costs)
- Pandemics - lack of worker —> no output
- war - exports of good stop
- Trade Union

Question 12

Consequences of recession (3)

Answer 12

unemployment rise (leads to lower income)
- rise in costs
- demand for goods/services decrease —> less revenue for firms resulting in worker lose job

Government spending incraeses while tax revenue falls, causing budget defecit

Price may fall or rise
- If caused by demand side shock, price falls
- If caused by supply side shock, price rise

Question 13

Define recession

Answer 13

A fall in real output over time