Economic growth

Question 1

What is economic growth

Answer 1

an increase in real GDP in an economy in a year caused by an increase in AD or LRAS

Question 2

What is an increase in AD also known as

Answer 2

short run growth (actual growth)

Question 3

What is short run growth (actual growth)

Answer 3

Where the economy is using spare capacity to increase real GDP

Question 4

How many diagrams can show actual growth (short run growth)

Answer 4

1 - an LRAS curve with two AD curves.
2 - a PPF with point X and point Y

Question 5

What do both short run growth (actual growth) diagrams show

Answer 5

how the economy uses up spare capacity to produce more goods and services which closes the negative output gap

Question 6

What are the causes of short run growth (actual growth)

Answer 6

• lower interest rates
• lower income/ corporation tax
• higher consumer/ business confidence
• weaker exchange rate
• higher government spending

Question 7

When considering causes of short run growth what equation do you need to remember

Answer 7

AD = C+I+G+(X-M)

Question 8

What is an increase in LRAS also known as

Answer 8

long run growth (potential growth)

Question 9

What is long run growth (actual growth)

Answer 9

the increase in productive capacity of the economy

Question 10

How many diagrams can show potential growth (long run growth)

Answer 10

1 - two LRAS curves and one AD curve
2 - a PPF1 and PPF2

Question 11

What do both long run growth (potential growth) diagrams show

Answer 11

A shift in LRAS - the full employment of the economy increases with the shift

Question 12

What are the causes of long run growth (potential growth)

Answer 12

• increase in labour productivity
• increase in workforce size (immigration)
• investment
• increase in competition
• new resource discoveries

Question 13

When considering causes of long run growth what do you need to consider

Answer 13

the three reasons for shifts

Question 14

What are the three reasons for shifts

Answer 14

• increase in quantity of FoP
• increase in quality of FoP
• increase in productive efficiency

Question 15

What does FoP stand for

Answer 15

Factors of Production

Question 16

How many benefits are there from economic growth

Answer 16

5

Question 17

What are the 5 benefits of economic growth

Answer 17

1 - higher living standards
2 - unemployment effects
3 - fiscal dividend
4 - accelerator effect
5 - environment

Question 18

How are higher living standards a benefit of economic growth

Answer 18

real GNI per capita helps to lift people out of poverty and improve development outcomes

Question 19

how are employment effects a benefit of economic growth

Answer 19

sustained growth creates jobs which lowers unemployment and reduces inequality, relative poverty and social problems

Question 20

How are fiscal dividends a benefit of economic growth

Answer 20

higher GDP growth raises tax revenues & reduces welfare spending therefore allowing extra spending more on public and merit goods

Question 21

How is the operator effect a benefit of economic growth

Answer 21

rising growth stimulates new investment

Question 22

how is the environment a benefit of economic growth

Answer 22

With higher real GDPa society has more productive resources available to invest.

Question 23

How many costs of economic growth are there

Answer 23

5

Question 24

What are the 5 costs of economic growth

Answer 24

1 - risk of higher inflation and interest rates
2 - widening trade deficit
3 - environmental costs
4 - inequalities of income and wealth
5 - well-being issues

Question 25

How is the risk of higher inflation and interest rates a cost of economic growth

Answer 25

rapid growth can lead top demand-pull and cost-push inflation, so banks raise interest rates to control inflation

Question 26

How is the widening trade deficit a cost of economic growth

Answer 26

rising consumer spending may lead to an increasing trade deficit as demand for imports soars

Question 27

How are environmental costs a cost of economic growth

Answer 27

negative externalities such as increased pollution and waste

Question 28

How are inequalities of income and wealth a cost of economic growth

Answer 28

there are inequalities of income and wealth

Question 29

How are well being issues a cost of economic growth

Answer 29

longer working hours which increases stress and reduces wellbeing

Question 30

What are the three points we use to evaluate benefits and costs of economic growth

Answer 30

• depends on underlying cause of growth.
• depends on how proceeds of economic growth are distributed
• depends on if the rate of growth is sustainable

Question 31

What are the 3 main types of growth

Answer 31

balanced growth, sustainable growth and inclusive growth

Question 32

what is balanced growth

Answer 32

• sectoral balance - between industries
• regional economic balance
• urban VS rural balance
• internal VS external balance
• balance between consumption and investment spending

Question 33

What is sustainable growth

Answer 33

• meets needs of current generation w/o limiting future resources
• sustainable development - pass on as much capital as possible
• environmental sustainability - long run protection of natural capital

Question 34

what is inclusive growth

Answer 34

• where the benefits are widely distributed
• growth drives higher median per capita incomes
• progress made in reducing relative poverty
• improving opportunities for all groups
• measured to tackle discrimination and barriers for affected groups