Economic Growth

Question 1

What is economic growth?

Answer 1

Economic growth means an increase in real GDP - this leads to higher output and higher average incomes

Question 2

How does economic growth occur?

Answer 2

Economic growth occurs due to an improvement in the quantity or quality of one of the factors of production

Question 3

Name four benefits of economic growth

Answer 3

1. Higher disposable incomes (living standards can increase)
2. Higher employment
3. Higher profits for firms (encouraged to Invest more)
4. Fiscal Dividend for Government (Increased in Tax Revenues)

Question 4

Why would Income Tax increase if the economy increased?

Answer 4

Because households are earning more income

Question 5

Why would VAT increase if the economy increased?

Answer 5

Because Incomes will be spent on goods and services

Question 6

Why would Corporation Tax increase if the economy increased?

Answer 6

Because firms are making more profits

Question 7

Why would Tariff Revenues increase if the economy increased?

Answer 7

Because Households are spending on Imports from Abroad

Question 8

Name four costs of economic growth

Answer 8

1. Inflation
2. Income Inequality
3. Environment
4. Current Account Deficit

Question 9

What is Actual growth?

Answer 9

The percentage increase in a country’s real GDP and it is usually measured annually. It is caused by increases in AD

Question 10

What is Potential growth?

Answer 10

is the long run expansion of the productive potential of an economy. It is caused by increases in AS

Question 11

How does Export led growth occur?

Answer 11

Export led growth occurs when countries open up their economies to the international market for example China

Question 12

How does a negative output gap occur?

Answer 12

occurs when the actual level of output is less than the potential level of output

Question 13

How does a positive output occur?

Answer 13

occurs when the actual level of output is greater than the potential level of output

Question 14

Why is it difficult to measure output gaps

Answer 14

1. The structure of the economy often changes, which means estimates may not always be accurate
2. Changes in the exchange rate might offset some inflationary effects of a positive output gap
3. Data is not always reliable

Question 15

What is the business cycle

Answer 15

this refers to the stage of economic growth that the economy is in

Question 16

What is the recovery stage

Answer 16

When real output is increasing when there are periods of economic growth

Question 17

what is a boom

Answer 17

the boom is when economic growth is fast, and it could be inflationary or unsustainable

Question 18

What happens in a recession

Answer 18

During recessions, the real output in the economy falls, and there is negative economic growth

Question 19

What is a recession

Answer 19

negative economic growth over two consecutive quarters

Question 20

What are the characteristics of a boom

Answer 20

1. High rates of economic growth
2. Near full capacity or positive output gaps
3. (Near) full employment
4. Demand-pull inflation
5. Consumer and firms confidence
6. Government budgets improve

Question 21

What are the characteristics of a recession

Answer 21

1. Negative economic growth
2. Lots of spare capacity and negative outputs gaps
3. Demand-deficient unemployment
4. Low Inflation rates
5. Government budgets worsen
6. Less confidence amongst consumers and firms

Question 22

What are the benefits of economic growth for consumers

Answer 22

1. The average consumer incomes increases

2. Consumers feel more confident in the economy which increases consumption and leads to higher living standards

Question 23

What are the costs of economic growth for consumers

Answer 23

1. Those on low fixed incomes might feel worse off if there is high inflation and inequality could increase
2. There is likely to be higher demand-pull inflation, due to higher levels of consumer spending
3. Law of diminishing returns

Question 24

What are the benefits of economic growth for firms

Answer 24

1. Firms might make more profits, which in turn increases investment
2. Higher levels of investment could develop new technologies to improve productivity
3. If there is more economic growth in exports markets, firms might face more competition, which will make them more productive and efficient

Question 25

What are the costs of economic growth for firms

Answer 25

1. Firms could face more menu costs as a result of higher inflation. This means they have to keep changing their prices to meet inflation

Question 26

What are the benefits of economic growth for the government

Answer 26

1. The government budget might improve. Higher tax revenues - Income tax, VAT, corporation tax

Question 27

What are the costs of economic growth for the government

Answer 27

1. idk

Question 28

What are the benefits of economic growth for the current and future living standards

Answer 28

1. Economic growth could lead to the development of technology to produce goods and services more greenly
2. Higher average wages mean consumers can enjoy more goods and services of a higher quality
3. Higher tax revenues which can be used for education, healthcare etc

Question 29

What are the costs of economic growth for the current and future living standards

Answer 29

1. High levels of growth could lead to damage to the environment in the long run due to increase negative externalities from the consumption