Economic Growth

Question 1

define economic growth

Answer 1

the expanison of the productive capacity of a country

Question 2

What is short run economic growth?

Answer 2

An increase in output, with existing resources

Question 3

What is long run economic growth?

Answer 3

Represents an increase in productive capacity (move outside PPC)

Question 4

How is short run economic growth measured?

Answer 4

measured as annual changes in real GDP, recoreded as % change

Question 5

How is long run economic growth meausred?

Answer 5

by averaging out annual growth rates over longer periods of time.

Question 6

Problems with measuring economic growth? (4)

Answer 6

• the volume of data to be collected involves degrees of inaccuracy and omissions
• Omissions relate to non-market activities
• non-marketed government services like free health care need to be valued.
• Omissions also refer to informal economies like illegal activities.

Question 7

Benefits of economic growth? (6)

Answer 7

• Growth of the economy’s productive capacity permits increased consumption and increased investment, which increases standard of living.
• Economic growth produces increased employment opportunities.
• Leads to business confidence.
• linked to increase in trade competitiveness
• increases the tax revenues of governments leading to more public spending.
• Expansion of an economy’s productive capacity decreases the risk of inflation

Question 8

Costs of economic growth?

Answer 8

• Leads to externalities like pollution and health problems

- It gives no indication to the distribution of the wealth.

Question 9

Causes of economic growth? (4)

Answer 9

• Consumption by households
• Spending by firms
• Government spending
• Export spending

Question 10

Causes of economic growth, Consumption by households?

Answer 10

• Decreasing tax —> More disposable income

- Quantitative easing —> Borrowing is easier and cheaper interest rate.

Question 11

Causes of economic growth, Government spending?

Answer 11

• Jobs creation

- Raise benefit leveles

Question 12

Causes of economic growth, Spending by firms?

Answer 12

• Decrease co-orporation tax
• Reduce interest rate
• Government subsidies

Question 13

Causes of economic growth, Export spending?

Answer 13

• Rising income levels in other countries
• Improved quality of goods
• Low exchange rate= exports cheaper.

Question 14

Government macro-economic objectives to do with economic growth?

Answer 14

• Achieve a steady rate of economic growth, that is economic growth must be sustainable.
• To avoid fluctuations in growth output, that is economic sustainibility.

Question 15

Define GDP?

Answer 15

GDP is the total value of output of goods and services in an economy in a given time period.

Question 16

How is the value of GDP measured?

Answer 16

-Output method (cost of making it)
-Income
-Expenditure (market price)
O=Y=E

Question 17

How is the value of GDP measured (output method)?

Answer 17

-By summing the value of every industry’s output. This method takes care to use value-added data to avoid double counting

Question 18

How is the value of GDP measured (income method)?

Answer 18

• Summing the payments to the factors of production (wages, profits, interest, rent), which represents national income.
• It is necessary to exclude transfer payments

Question 19

How is the value of GDP measured (expenditure method)?

Answer 19

-Take the types of expenditure:
Consumer expenditure, Investment expenditure, Government expenditure, Export expenditure.
-Subtract Import Spending.
-Don’t include transfer payments

Question 20

Define Nominal GDP?

Answer 20

The value of national output measured at current prices

Question 21

Define Real GDP?

Answer 21

The adjust value of national output measured at constant prices, adjusted for inflation.