Economic Growth 3 Flashcards
What effect will economic growth have on labour?
• Increased demand for labour, leading to a fall in unemployment and higher incomes from individuals
What effect will economic growth have on firms?
- Firms will be succeeding, employees will receive higher wages.
- Rise in the standard of living, as long as prices don’t rise more than the increase in wages
- Firms are likely to earn greater profits when there is economic growth, as consumers will have higher incomes and will spend more, firms can use these profits to invest in better machinery, make technological advances and hire more employees, causing an increase in the economies productive potential.
- Improve balance of payments because it will sell more exports
How does economic growth affect govt taxes?
- Wages & Employment rises
- Increase governments tax revenue, reduce amount paid in unemployment benefits
- Extra revenue can be spent on public services without having to raise taxes
- Improves fiscal position, because if it receives more money it will have less need of borrowing
How does economic growth benefit the environment?
Firms may have more resources to invest in clearer and more efficient productive processes
What are some disadvantages of economic growth?
- Income inequality, low income workers may find it hard to get higher wages that other workers are befitting from
- Causes demand pull inflation, because it causes demand to increase faster than supply
- Can cause cost pull inflation ( economic growth increases the demand for resources, pushing up prices ). Effects of inflation can be decreased if AS also increases
- Deficit in the balance of payments can be created because people on higher incomes buy more imports, firms may import more resources to increase production to meet higher levels of demand
- Industrial expansion caused by economic growth can affect the environment negatively
- Resources being overexploited harms the environment
- Finite resources can be used up, straining potential future growth
How does a recession negatively impact an economy?
- Firms will close down, many people will become unemployed, increasing unemployment
- Firms may stop hiring new employees, further increasing unempoyment
- Government spending increases, one example being unemployed benefit payments increasing, amount of tax received falling, leading to increased government borrowing and a budget deficit.
- Levels of investment fall, firms might reduce the amount they spend on research and development, can impact long run productive potential of an economy
How does a recession benefit an economy?
- Firms can benefit, discount retailers attract more customers if people are feeling less confident about economic prospects
- Recessions can force firms to face up to their inefficiencies by cost cutting to survive, firm can emerge from the recession more efficient than it previously was.
How does AD affect short term growth?
AD rises so the AD curve shifts to the right.
What is an increase in AD caused by?
Demand side factors:
• Lower interest rates encourages investment and increases consumption
• Increasing welfare benefits increases government spending and consumption
What does the AD shift depends on?
- MPC
* Multiplier effect
What will a rise in SRAS cause?
• Economic growth, when SRAS rises the SRAS curve shifts to the right
What causes rises in SRAS?
Factors which reduce production cause
What is long run growth the result of?
• Supply side factors that raise the productive potential of the economy
How can the productive potential of economies be raised?
Increases to the quantity and quality of productions.
What are some examples of quantity/quality being raised?
- Innovation/Technology
- Investing in capital
- Raising agricultural output through GM ropes
- increasing spending on education/training to improve human capital
- Increasing the population size
