Economic Growth

Question 1

What is the main cause of economic growth?

Answer 1

An increase in the quality/quantity of factors of production

Question 2

How can land cause economic growth?

Answer 2

Discovery if new resources improves economic growth

Question 3

How can labour improvement increase economic growth?

Answer 3

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)

Question 4

How does increased capital improve economic growth?

Answer 4

Greater investment improves access to technology so improves

Question 5

What is an argument that increased capital can decrease economic growth?

Answer 5

Investment can be unsuccessful, can also not be aimed at increasing GDP (I.e house building)

Question 6

How can enterprise increase economic growth?

Answer 6

Government offers tax benefits/grants to encourage business development, increases economic growth

Question 7

How does too much wealth distribution negatively impact economic growth ?

Answer 7

Less incentive to work as rich lose money from taxes + poor earn enough from benefits not to work - decreases investment

Question 8

How do technological advances cause economic growth?

Answer 8

Improved technology reduces AC, also increases consumption as new products so MPC high

Question 9

How do governments ensure efficiency to increase economic growth?

Answer 9

Government keep competition high by profit capping and regulating big firms

Question 10

What do governments do in LICs to ensure people invest and save?

Answer 10

Protect property rights, greater security do more willing to save/invest

Question 11

What would be an issue regarding efficiency for economic growth?

Answer 11

If there is a lack of capital to borrow, businesses can’t expand as easily to benefit from EoS and improve efficiency

Question 12

How does communism create a lack of efficiency?

Answer 12

Lack of efficiency as government not profit driven

Question 13

What does actual growth show?

Answer 13

The percentage change in GDP

Question 14

What does potential growth show?

Answer 14

Change in productive potential overtime (shifts in the PPF curve)

Question 15

What is the impact of export-led growth on economic growth?

Answer 15

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

Question 16

What is the output gap?

Answer 16

The difference between actual GDP and potential GDP

Question 17

What is an issue with the output gap?

Answer 17

Difficult to measure

Question 18

What must there be if there is a negative output gap?

Answer 18

Spare capacity

Question 19

What is the classical economics argument regarding output gap and LRAS?

Answer 19

A positive output gap will lead to a shift in the right of the LRAS curve

Question 20

What is the trade cycle?

Answer 20

The movement of GDP between recessions and booms

Question 21

What are the characteristics of an economic boom?

Answer 21

High national income, positive output gap, inflationary pressures

Question 22

Characteristics of an economic recession

Answer 22

High unemployment, low inflation, shown by a fall in GDP over 2 consecutive quarters

Question 23

Hysteresis theory

Answer 23

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

Question 24

Impact of economic growth on housing market

Answer 24

Increases demand for houses (positive wealth effect) but hurts first time buyers

Question 25

What does increase on economic growth have in technology

Answer 25

Improved productive efficiency, leads to lower prices and higher quality goods (for consumers)

Question 26

What is the correlation between economic growth and happiness?

Answer 26

Greater growth, greater happiness

Question 27

What are the negative impacts of economic growth on consumers

Answer 27

Increased inflation and inequality

Question 28

What are the benefits for firms from economic growth?

Answer 28

Increased investment ( greater incentive + more money to invest), improved business confidence, higher profits, opportunities for new firms ( increases competition )

Question 29

What are the negative impacts for firms due to economic growth?

Answer 29

Firms with inferior goods may suffer, changing technology may cause market to disappear

Question 30

What are the positives impacts on the government from economic growth?

Answer 30

Tax revenue will rise, government increase spending, improve living standards + also reduces the budget deficit

Question 31

What are the negatives on the government of economic growth?

Answer 31

Greater pressure as people expect more

Question 32

What are the improvements in living standards from economic growth?

Answer 32

Lower poverty ( less unemployment + rising wages ), more choice of goods (lowers inequality), rise in health+ housing standards, has a more positive impact in developing countrien

Question 33

What are the negative impacts on living standards due to economic growth?

Answer 33

Worsens sustainability + environmental impact - but argument companies can devote resources for R and D to afford cleaner fuels