Economic growth 2.5.1

Question 1

how does economic growth occur

Answer 1

there need to be an increase in the quantity and the quality of one of the 4 factors of production

Question 2

Effects of economic growth on increased consumption

Answer 2

there would be a cut in interest rated meaning the opportunity costs for savings falls and the cost of borrowing to invest falls. it can lead to mortgage interest repayment decreasing, this will allow people to have more disposable income which improves their consumer confidence.

Question 3

Effects of economic growth on increased investments

Answer 3

firms invest more when the interest rates are low, this will allow them to increase their investment and incentive. improving their productive efficiency.

Question 4

Effects of economic growth on increased Government spending

Answer 4

Government can use fiscal policy to stimulate the economy. this means spending on government projects such as building and education. this is what the Keynesian believes however classical economist believe that this will increase inflation and debt.

Question 5

Effects of economic growth on increased net exports

Answer 5

so holding the exchange rate as this will make exports cheaper and imports relatively more expensive. However in the UK we have a fully floating exchange rate and no manipulation is possible.