economic growth and GDP

Question 1

what is economic growth (2)

Answer 1

it is the main indicator of how well the economy is performing and occurs when a country is experiencing an increase in GDP

economic growth is defined as an increase in the real value of the output of goods and services over a period of time

Question 2

what is sustainable economic growth

Answer 2

growth in demand and output without increasing inflation

Question 3

how is GDP measured (3)

Answer 3

output: total value of the goods and services produced by all sectors of the economy

expenditure: the value of goods and services bought by households and by government, investment in machinery and buildings, including value of exports minus imports

income: the value of the income generated from production mostly in terms of profits and wages

Question 4

what is the gross national product (2)

Answer 4

this is a secondary measure of assessing how an economy is performing

it measures the total value of goods produced and services produced by the citizens and business of a country no matter where they are based in the world

Question 5

national expenditure is spilt into 5 categories to measure GDP explain.

Answer 5

consumer spending (C): includes pensions and benefits
business investment (I)
Government spending (G) excluding benefits and pensions
exports: (X) uk produce sold abroad
imports: (M) spending on foreign produce by uk citizens

GDP = C + I + G + (X - M)

Question 6

benefits of growth (3)

Answer 6

• increases employment giving people more money and better living standard
• more tax revenue for government and less spending on unemployment benefits
• improved productivity

Question 7

costs of growth (5)

Answer 7

• not all the increased income is distributed equally creating more inequality
• pollution is caused
• growth can be caused by overspending leading to large unaffordable debt
• cause inflation which due to increase spending and demand
• depletion of non renewable goods

Question 8

stages of the business/trade cycle (4)

Answer 8

boom/peak: GDP increasing. income, employment and tax revenue are high and inflation may start to increase

recession: GDP falls, income, employment and tax revenue are falling whereas benefits payments increase

slump: GDP falls further with issues more severe than recession and high unemployment, lower demand and less tax revenue

recovery: GDP begins to increase. income, employment and tax revenue begin to rise

Question 9

what is GDP

Answer 9

attempts to measure all the activity of companies, governments and individuals in a country

Question 10

limitations of GDP (2)

Answer 10

hidden economy: unpaid work is not captured in official figures such as caring for elderly

inequality: it doesn’t show how income is split across population

Question 11

creating growth - demand side policy

Answer 11

growth can be created if consumer spending, business investment, government spending or exports are increased or imports are reduced

Question 12

Monetary policy to create growth (3)

Answer 12

• lowering interest rate can encourage more consumer spending as lower interest rates make it cheaper to borrow money, reduce mortgage repayment and reduce the incentive to save. increased spending creates growth
• lowering interest rates encourages business to invest as lower interest makes it cheaper for business to borrow money so business are more likely to borrow and grow their business which may create jobs. this increases employment which leads to increase spending and growth
• lowering interest rate reduces the exchange rate value of the pound sterling which increases exports as they become cheaper and decreases imports as they become more expensive

Question 13

fiscal policy to create growth (3)

Answer 13

• reduce tax for individuals can increase consumer spending as it provides more disposable income to spend
• reducing taxes for business can increase business investment as it allowed them to keep more profits
• increasing government spending provides more jobs

Question 14

creating growth - supply side policies (5)

Answer 14

economic growth will happen if a country increases its productive capacity e.g. if there is an increase in the quantity of quality of its resources (land labour or capital) allowing more goods and services to be produced

a production possibility curve is used to show economic growth occurring in this way

growth can be achieved by:
- increasing investment in new factories, roads and infrastructure
- increasing the working population through immigration and higher brith rate
- better education and training

Question 15

issues with economic growth regarding the environment (6)

Answer 15

• global warming
• air pollution
• water pollution
• traffic congestion
• depletion of non renewable energy resources
• landfill waste

Question 16

government economic policy to avoid environment (3)

Answer 16

market based policies
- aim to influence producers or consumers by the price they have to pay e.e. making them pay for external costs they create.usually by imposing taxes or imposing charges e.g. landfill tax aims to minimise waste and encourage recycling

non-market policies
- impose direct controls on polluters or which involve government investment with the taxpayer paying bills

government investment
- improved sewage disposal
- research into renewable energy
- recycling projects