Economic Growth Flashcards
Economic Growth
the change in the value of GDP from before to after ~ %
causes of EG : expanding capital stock
(investment)
spending on more new & improved machinery = more capacity to make more better & faster = EG
causes of EG : increasing active labour supply
more workers = GDP rises ~ higher immigration, rise in birth rate
causes of EG : improving factor production
investment in education & training = produce more skilful and productive workers
causes of EG : driving innovation and enterprise
culture that celebrates business, enterprise and creation of wealth
investing in research and development, encouraging innovation and STEM
benefits of EG : higher living standards and reduction in poverty
everyone has more output to consume than before
improves development outcomes
with more tax revenues from incomes and spending, the government can use it to raises the living standards of those on lower or fixed incomes
benefits of EG : rise in employment
more workers will be needed to produce the extra output which also leads to a reduce in inequality
benefits of EG : fiscal dividend
(gov taxing and spending)
higher EG = raise tax revenues and reduce gov spending on benefits = reduce levels of gov deficit and debt increases slower
costs of EG : risk of higher inflation and interest rates
fast growing demand = demand-pull & cost-push inflation
we’ve got more money, so let’s spend
costs of EG : environmental effects
more negative externalities and risk of unsustainable extraction of finite resources
costs of EG : lower quality of life
people earn more money and move into cities where life is busy and stressful
gov policies to achieve EG : fiscal
gov taxing and spending
TAX CUTS - cut direct/indirect tax to give peeps disposable income/the need to spend more, so demand rises and firms need the CELL and EG/GDP rises
INCREASE GOV SPENDING - by spending more on gov services & recruiting more & increasing spending on gov benefits and investments, this extra spending injects money into economy = higher demand = firms need CELL = rise in GDP/EG
gov policies to achieve EG : monetary
control of money supply & interest rates
controlling interest rates controls how much it costs to borrow and the reward for saving
high IR = more saving, less borrow
low IR = more borrow, less save
