Economic Growth

Question 1

Economic growth

Answer 1

An increase in the quantity or quality of goods and services

Question 2

Gross Domestic Product

Answer 2

The total value of goods and services produced by the factors of production at a given time

Question 3

Index numbers

Answer 3

A way of comparing the value of a variable with a base observation such as a period or location
- (value) / (base value) x 100

Question 4

Nominal GDP

Answer 4

The total output measured in current prices that is not adjusted to inflation

Question 5

Real GDP

Answer 5

The total output measured in current prices that is adjusted to inflation

Question 6

Formula of GDP

Answer 6

(nominal GDP) / (current year price index) x 100

Question 7

GDP per capita

Answer 7

The avergae level of GDP per head of the population
- GDP / population

Question 8

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Difficulties in measuring economic growth

Answer 8

1. Shadow/informal economy
- the goods and services that are not declared

2. Non-marketed goods
- services that are not monitorised e.g childcar
- produced without money changing hands
- not shown as economic growth

Question 9

Short Run Economic Growth

Answer 9

An increase in actual GDP
- (actual growth)

Question 10

When does short run economic growth occur?

Answer 10

due to any changes in AD

Question 11

Advantages of Consumption-Led Growth

Answer 11

• consumption is the biggest compoment of AD so dramatic change
• output increases, derived demand for labour increases, employment increases
• profits increase, can improve quality, exports increase

Question 12

Disadvantages of Consumption-Led Growth

Answer 12

• not sustainable/volatile
• debt fuelled
• wealth effect
• demand pull inflation
• nature of good
• globalisation/changes in trends

Question 13

Advantages of Investment-Led Growth

Answer 13

• non-inflationary growth
• quality increases so exports increase
• employment increases to use capital
• unit labour costs fall
• economies of scale

Question 14

Disadvantages of Investment-Led Growth

Answer 14

• volatile
• capital labour substitution
• means of investment
• poor quality
• time lag
• lack of demand
• isolated investments

Question 15

Advantages of Export-Led Growth

Answer 15

• injections into the circular flow of income
• output increases, derived demand for labour increases, employment increases
• profits increase, investments increse, can improve quality

Question 16

Disadvantages of Export-Led Growth

Question 17

What does export-led growth depend upon?

Answer 17

• having a diverse range of products so if demand for one good decreases still able to sell other goods
• if the benefits of export led growth is spread out in the economy

Question 18

1.

Long Run Economic Growth

Answer 18

When there is an increase in the productive capacity in an economy

Question 19

When does long run economic growth occur?

Answer 19

when there is an increase in quality and quantity of factors of production

Question 20

Advantages of Economic Growth

Answer 20

• lower unemployment
• reduction in poverty
• international competitiveness
• increased standards of living
• tax revenue

Question 21

Disadvantages of Economic Growth

Answer 21

• inflation
• worsening of net exports
• increases income inequality
• decreased standards of living
• environmental costs

Question 22

What do the benefits of economic growth depend upon?

Answer 22

1. Government Policies
- depends on if spending on the right sectors
- depends on if targetting to improve productive capacity of the economy
- depends on if the government is not corrupt

2. Sustainability
- if long lasting economic growth
- making sure workers and capital is not burnt out and overworked so more productive

3. If wide spread
- depends on if every area is experiencing economic growth and not just one area
- economic growth cannot be dominated by a large industry only
- if not it would lead to income inequality
- look at GDP per capita to see if everyone is benefitted

4. Balance
- depends on the balance of the components of AD
- if AD is only increased by consumption as soon as it starts to decrease, economic gorwth also falls
- beneficial if all components increase because if one component decreases, economic growth wont fall as much