Economic Growth Flashcards
What are potential and actual economic growth?
Potential economic growth refers to the capacity of the economy to produce more goods and services over time. Actual economic growth is determined by the level of spending from households, firms, and government.
What are the “3 P’s” that contribute to potential economic growth?
The “3 P’s” are:
Population Growth
Participation Rate
Productivity
How does population growth contribute to economic growth?
Population growth increases demand for goods and services, enlarges the labor force, and through migration, brings in skills and knowledge from overseas, thereby promoting economic growth.
What is productivity and how does it impact economic growth?
Productivity measures how efficiently inputs like labor and capital are transformed into outputs. Higher productivity allows for increased output with the same inputs, leading to economic growth through innovation and efficiency gains.
How does economic growth affect taxation and government revenue?
Economic growth results in higher incomes and profits, increasing tax revenues for the government through personal income taxes, corporate taxes, and sales taxes (like GST).
What is the participation rate and why is it important for economic growth?
The participation rate is the proportion of people in the workforce or actively seeking employment. A higher participation rate indicates better utilization of human resources, which supports economic growth.
What are the potential costs and benefits of economic growth?
Economic growth can increase real income, improve material welfare, and lead to higher quality goods and services. However, it may also lead to income inequality, inflationary pressures, structural changes, and environmental issues.
What is structural change in the context of economic growth?
Structural change involves significant shifts in the economy, such as changes in industries or employment patterns, often leading to disruptions and structural unemployment as jobs shift between sectors.
How does economic growth impact leisure time?
Economic growth can reduce working hours while maintaining or increasing output, allowing people more leisure time for hobbies, family, rest, and other personal activities, thereby enhancing quality of life.
What are some negative externalities associated with economic growth?
High economic growth can lead to environmental issues like climate change, pollution, and resource depletion, as economic activities may not fully account for their environmental costs (negative externalities).
