Economic Growth

Question 1

What is the difference between short-run and long-run economic growth?

Answer 1

Short run - increase in real GDP and output of G/S.

Long run - increase in productive potential, the economy is capable of producing more G/S.

Question 2

How is short run and long run economic growth shown on the PPF?

Answer 2

Short run can be shown as a recovery from a recession. Long run can be shown as an outward shift of the PPF.

Question 3

What are index numbers for and how are they calculated?

Answer 3

They can show changes in GDP relative to a base year.

Index no. = (Current figure/ figure in base yr) x 100

Question 4

What is the difference between nominal and real figures for GDP?

Answer 4

Nominal - expressed in current prices representing the value of G/S produced.

Real - adjusted for inflation expressed in constant prices. Represent volume of G/S.

Question 5

What is the difference between GDP and GNI?

Answer 5

GDP - doesn’t include output/ income from abroad, only measures output where FoPs are located.

GNI - includes overseas interest payments & dividends, where FoPs are owned. (total income received by a country’s residents regardless of where they are based.

Question 6

What does GNP include?

Answer 6

It includes value of G/S produced by a citizen of a country, includes all income of a country’s residents wherever it is spent.

Question 7

What is a limitation of using GDP per capita to measure living standards?

Answer 7

GDP per capital is a mean average and does not indicate inequality or other factors.

Question 8

What are the 3 indicators used to calculate HDI?

Answer 8

Health - life expectancy at birth

Education - mean school yrs for those 25+, expected school years for a 5 y/o.

Income - GNI per capita at PPP

Question 9

What are 3 advantages of using HDI?

Answer 9

Shows effectiveness of gvt policy/ international aid, encourages focus on development instead of income, shows progress over time.

Question 10

What are 3 disadvantages of using HDI?

Answer 10

Does not show income inequality, u/e or environment, ignores health problems, ignores quality of education.

Question 11

What causes long run economic growth?

Answer 11

An increase in quality and quantity of FoPs.

Question 12

What are 2 ways to increase quality/ quantity of Land?

Answer 12

Discovering more natural resources, finding new ways to exploit resources.

Question 13

What are 4 ways to increase quality (1) / quantity (3) of Labour?

Answer 13

Quality - Education/ training

Quantity - Demography (more births, less deaths), more participation (eg. later retirement), Immigration (more workers)

Question 14

What are 2 ways to increase quality (1) / quantity (1) of Capital?

Answer 14

Quality - Advances in tech (efficiency up, lower costs, innovation)

Quantity - growth related investment (more new machinery)

Question 15

What are 3 ways to increase quality/ quantity of Enterprise?

Answer 15

Promote competition (less barriers to entry), protection of property rights, addressing market failure (monopolies, profit incentive)

Question 16

How can export led growth be increased in the short run and long run?

Answer 16

SR - increase actual output (more customers with more production)

LR - increase LRAS to meet increased demand (invest in capital to increase efficiency and maintain competitiveness)

Question 17

What are 3 benefits of economic growth?

Answer 17

Ability to buy G/S & necessities, better health & life expectancy, better housing & living standards.

Question 18

What are 3 drawbacks of economic growth?

Answer 18

Unsustainability (using up natural resources), increased pollution, inequality between nations

Question 19

What are 3 ways that the price mechanism conserves scarce resources?

Answer 19

Gvt can tax to prevent overuse, as costs increase firms look at alternatives, as £ increases demand falls.

Question 20

What are 4 ways economic growth impacts consumers? (2 +ve, 2 -ve)

Answer 20

+ve - higher income, more choices

-ve - more inequality, poorer work/life balance

Question 21

What are 5 ways economic growth impacts firms? (3 +ve, 2 -ve)

Answer 21

+ve - more output, more profit, more productivity (from investment & capital)

-ve - costs increase (wages), more competition for resources

Question 22

What are 6 ways economic growth impacts consumers? (2 +ve, 4 -ve)

Answer 22

+ve - more tax revenue, low u/e

-ve - increased gvt spending, public sector wages up, worse environment, loss of low skill jobs