Economic Growth

Question 1

What is Economic Growth?

Answer 1

Economic Growth is the change in a country’s National Income called Real GDP over a given period of time

Question 2

What Is Real GDP

Answer 2

Real GDP is the total value of output over a given period of time which has been adjusted for inflation

Question 3

Economic Growth occurs in the short run when:

Answer 3

There is an increase in actual output due to an increase in the aggregate demand in an economy. The AD curve shifts to the right.

Question 4

Economic Growth occurs in the long run when:

Answer 4

There is an increase in potential output . The AS curve shifts to the right.

Question 5

When is sustainable growth possible in the short run?

Answer 5

Sustainable growth is possible in the short run if it can be maintained year after year. i.e. if actual growth matches trend growth (AD=AS)

Question 6

What happens when the economy want’s out put to grow more than it’s capable off?

Answer 6

Inflation increases due to the buying of more imports and the worsening the balance payments

Question 7

When is sustainable growth possible in the long run?

Answer 7

It is when the economy is able to grow generation after generation without depleting all the non-renewable resources and without damaging the environment in a non-sustainable way.

Question 8

Name the three ways to measure GDP

Answer 8

• The Output method
• The Income method
• The Expenditure method

Question 9

What is the Output method and what are the problems with this method.

Answer 9

The output method is where you combine all of the outputs of the firms in the economy.
A problem with this method is that you can double count the output of a firm because the output of one firm is used in the production of another firm. This means GDP is overstated.

Question 10

What is the Income method and what are the problems with this method.

Answer 10

It’s where you add up all the incomes received by factors of production for producing the economy’s output.
A problem with this is that you can’t include incomes counted or transfer payments as they aren’t linked to productive output

Question 11

What is the Expenditure method and what are the problems with this method.

Answer 11

The expenditure method is when you add together all the money spent on good/services by households.
A problem with this method is that you must exclude any imports and indirect tax must be taken away from the figure and subsidies must be added.