Economic Growth Flashcards
What is the main cause of economic growth?
An increase in the quality/quantity of factors of production
How can land cause economic growth?
Discovery if new resources improves economic growth
How can labour improvement increase economic growth?
Increase size of labour force ( immigration, raise retirement age, provide benefits to work) or increase quality of workforce ( education/training - this also reduces structural unemployment and occupational immobility)
How does increased capital improve economic growth?
Greater investment improves access to technology so improves
What is an argument that increased capital can decrease economic growth?
Investment can be unsuccessful, can also not be aimed at increasing GDP (I.e house building)
How can enterprise increase economic growth?
Government offers tax benefits/grants to encourage business development, increases economic growth
How does too much wealth distribution negatively impact economic growth ?
Less incentive to work as rich lose money from taxes + poor earn enough from benefits not to work - decreases investment
How do technological advances cause economic growth?
Improved technology reduces AC, also increases consumption as new products so MPC high
How do governments ensure efficiency to increase economic growth?
Government keep competition high by profit capping and regulating big firms
What do governments do in LICs to ensure people invest and save?
Protect property rights, greater security do more willing to save/invest
What would be an issue regarding efficiency for economic growth?
If there is a lack of capital to borrow, businesses can’t expand as easily to benefit from EoS and improve efficiency
How does communism create a lack of efficiency?
Lack of efficiency as government not profit driven
What does actual growth show?
The percentage change in GDP
What does potential growth show?
Change in productive potential overtime (shifts in the PPF curve)
What is the impact of export-led growth on economic growth?
Increases AD, firms forced to increase supply to meet demand leading to economic growth - firms also forced to increase efficiency as competing with international market
What is the output gap?
The difference between actual GDP and potential GDP
What is an issue with the output gap?
Difficult to measure
What must there be if there is a negative output gap?
Spare capacity
What is the classical economics argument regarding output gap and LRAS?
A positive output gap will lead to a shift in the right of the LRAS curve
What is the trade cycle?
The movement of GDP between recessions and booms
What are the characteristics of an economic boom?
High national income, positive output gap, inflationary pressures
Characteristics of an economic recession
High unemployment, low inflation, shown by a fall in GDP over 2 consecutive quarters
Hysteresis theory
During a deep recession, economy may never fully as workers lose skills/retire early so supply of labour falls + firms don’t make an investment back up
Impact of economic growth on housing market
Increases demand for houses (positive wealth effect) but hurts first time buyers
