Economic Growth

Question 1

What factors cause economic growth

Answer 1

• Improving the labour force
• A larger labour force
• Improved technology
• More investment
• Discovering new resources
• Incentives for enterprise

Question 2

What is actual growth

Answer 2

The percentage increase in a country’s real GDP and it is usually measured annually, caused by an increase in AD

Question 3

What is potential growth

Answer 3

The long run expansion of the productive potential of an economy, caused by increase in AS

Question 4

What is comparative advantage

Answer 4

When a country can produce goods and services at a lower opportunity cost than another

Question 5

What is a negative output gap

Answer 5

When the actual level of output is less than the potential level of output

Question 6

What is a positive output gap

Answer 6

When the actual level of output is greater than the potential level of output

Question 7

What are some benefits towards consumers as a result of economic growth

Answer 7

• The average consumer income increases as more people are in employment and wages increase
• Consumers feel more confident in the economy which increases consumption

Question 8

What are some costs towards consumers as a result of economic growth

Answer 8

• Economic growth does not benefit everyone equally, those on low and fixed incomes might become worse off
• There is likely to be higher demand-pull inflation, due to higher levels of consumer spending
• The benefits of more consuming might not last after the first few units due to the law of diminishing marginal returns

Question 9

What are some benefits towards firms as a result of economic growth

Answer 9

• Firms might make more profits, which might in turn increase investment
• Higher levels of investment could develop new technologies to improve productivity and lower AC in the LR
• As firms grow, they can take advantages of the benefits of economies of scale

Question 10

What is a cost towards firms as a result of economic growth

Answer 10

Firms more menu costs as a result of higher inflation. This means they have to keep changing their prices to meet inflation

Question 11

What is a cost towards the government as a result of economic growth

Answer 11

Governments might increase their spending on healthcare if the consumption of demerit goods increase

Question 12

What is a benefit towards the government as a result of economic growth

Answer 12

The government budget might improve since fewer people require welfare payments and more people will be paying tax