Economic growth

Question 1

What is economic growth measured as?

Answer 1

A change in GDP

Question 2

What is GDP?

Answer 2

The value of finished goods and services within a time period

Question 3

Why do you only count finished goods and services when measuring GDP?

Answer 3

To avoid counting things twice

Question 4

How do we account for differences in population?

Answer 4

By using GDP per capita

Question 5

What is the difference between ‘nominal and ‘real’ GDP?

Answer 5

Nominal is the raw figure, whereas real takes into account inflation

Question 6

What constitutes a recession?

Answer 6

Two quarters of negative economic growth

Question 7

What does GDP ignore?

Answer 7

Things that do not have monetary value, such as happiness, personal wellbeing and the environment

Question 8

What type of work does GDP fail to measure?

Answer 8

Informal work in the home

Question 9

What issue can GDP be seen as contributing to?

Answer 9

Environmental problems

Question 10

What does short term growth tend to depend upon?

Answer 10

Where a country is in the economic cycle

Question 11

Why can certain countries undego periods of disproportionately rapid economic growth?

Answer 11

During post war construction

Question 12

What tends to happen to growth as per capita incomes rise?

Answer 12

It slows

Question 13

What is doughnut economics?

Answer 13

The idea that we need to find a balance between improving people’s lives and lifting them out of poverty while also protecting the environment

Question 14

What would doughnut economics require?

Answer 14

A complete re-evaluation of economics, as we must find a way to help the disadvantaged while simultaneoulsy adhering to an environmentally friendly growth limit

Question 15

What can GDP give a distorted picture of?

Answer 15

Living standards

Question 16

What type of inequality can GDP hide?

Answer 16

Regional

Question 17

List some of the potential trade offs for a rise in GDP

Answer 17

• Cut backs to working conditions
• Decreased leisure time due to longer hours

Question 18

What does GDP not account for the depreciation of when production is high?

Answer 18

Capital

Question 19

What doesn’t GDP take the cost of into account?

Answer 19

Servicing debt

Question 20

List the different things that GDP fails to value

Answer 20

• Leisure time
• Health
• Education
• Environment
• Activities conducted outside the market
• Income inequalities
• Increases in variety
• Increases in technology
• The positive/negative value that society places on certain types of output

Question 21

Why doesn’t GDP effectively account for happiness?

Answer 21

Because many of the things that cause happiness are not bought or sold

Question 22

How can GDP be seen as understating improvements in living standards?

Answer 22

• The average work week in the US has decreased from 60 to 40 hours
• Life expectancy, average levels of education and health have risen dramatically
• Since 1970, air and water in the US has generally been getting cleaner
• New technology has developed for entertainment, information, travel and wealth
• A much wider variety of food and clothing is available now compared to just a few decades ago

Question 23

How can GDP be seen as overstating improvements in living standards?

Answer 23

• Crime rates, traffic congestion and income inequalities in the US are all higher now than they were in the 1960s
• A number of services previously provided by women outside the market are now provided within the market economy, and are therefore counted as GDP

Question 24

What are the benefits of GDP?

Answer 24

• It measures production
• Indicates whether a country is materially better off in terms of jobs and incomes
• In most countries, higher per capita incomes correlate with better health, education and environmental protections

Question 25

How can economic growth cause inflation?

Answer 25

The extra demand puts pressure on businesses and they might find they cannot supply everyone. In this situation, many businesses increase their prices to deal with the extra demand

Question 26

Give a counter to the idea that economic growth causes inflation

Answer 26

In the long term, businesses will often grow their production capacities, meaning they won't need to put up their prices

Question 27

How can economic growth cause pollution?

Answer 27

The extra output leads to increased waste production and greenhouse gas emissions

Question 28

Counter the idea that economic growth causes pollution

Answer 28

Since the 1970s, air and water in the US has generally been getting cleaner in spite of economic growth

Question 29

How can economic growth cause resource depletion?

Answer 29

Extra production can use up finite natural resources. For instance, if we build on green land, we can never get this resource back

Question 30

Counter the idea that economic growth causes resource depletion

Answer 30

- We can now recycle more efficiently - Synthetic products are being developed at a faster rate

Question 31

How can econoic growth cause a trade deficit?

Answer 31

As we get richer, we can afford a wider range of foreign goods

Question 32

Counter the idea that economic growth causes a trade deficit

Answer 32

- You could use protectionism - You could build trade relationships to increase exports

Question 33

How can economic growth cause inequality?

Answer 33

Since WW2, GDP has doubled but median incomes have only grown by 40%. This means that economic growth has disproportionately benefitted the rich

Question 34

Counter the idea that economic growth is undesirable because it produces inequality?

Answer 34

- Inequality can provide an incentive for people to work harder - Median incomes have risen, meaning most peoples' standard of living has increased regardless - Progressive taxation can be used to redistribute income

Question 35

How does economic growth cause the disease of affluence?

Answer 35

- Higher incomes can make you less healthy, as there is more opportunity to engage in vices - The wealthy travel more - There could be a reduction in manual labour, causing people to become sedentary. This is problematic in the UK, as this is another burden that will be placed upon the NHS

Question 36

Counter the idea that economic growth causes the disease of affluence

Answer 36

- You could tax unhealthy purchases - More leisure and less work could be good for health and wellbeing - As we get richer medical care improves, allowing us to negate many of the downsides

Question 37

How does economic growth raise standards of living?

Answer 37

If we have more goods but the same amount of people, per capita incomes will rise

Question 38

Counter the idea that economic growth raises living standards

Answer 38

A rise in per capita incomes usually comes at the cost of a drop in leisure time

Question 39

How can economic growth lower unemployment?

Answer 39

Businesses can afford to employ more people. The extra output requires increased labour, so more jobs are created

Question 40

Counter the idea that economic growth lowers unemployment

Answer 40

Workers can be replaced by machines as businesses look to produce in a more cost effective manner

Question 41

How does economic growth create future prosperity?

Answer 41

If economic growth is stable then businesses are more likely to take risks, invest and make long-term decisions

Question 42

Counter the idea that economic growth creates future prosperity

Answer 42

- Ecological destruction doesn't indicate much future prosperity - Economic growth can be undone by external events

Question 43

How can economic growth improve public finances?

Answer 43

If we've grown, more people are in work. This means the government is receiving more tax revenue and giving out less transfer payments

Question 44

What could improved public finances be spent on?

Answer 44

- Reducing taxes - Improving public services - Paying down the debt