Economic growth (MAC)

Question 1

What is actual growth?

Answer 1

It is the increase in real GDP.

Question 2

What is real GDP?

Answer 2

It is the output of an economy with the effects of inflation removed.

Question 3

What is the output gap?

Answer 3

It is the difference between actual GDP and potential GDP

Question 4

What are the causes and changes in AD?

Answer 4

Increase in consumption

Increase in investment

Increase in government expenditure

Increase in net exports

Question 5

What are the causes and changes in LRAS?

Answer 5

Increase in investment

New technology

Increase in net migration

Supply side policies

Question 6

What factors decrease economic growth?

Answer 6

A lack of access to funds for investment

Corrupt government

Currency instability

Poor quality human capital

Protectionism by other countries

Question 7

What is the actual growth rate of economic growth?

Answer 7

Is the rate at which real GDP changes from one year to another

Question 8

What is the long term trend rate of economic growth?

Answer 8

It is calculated as the average rate of economic growth over several years. It is determined by the increase in productive capacity and is consistent with a stable rate of inflation.

Question 9

What is a negative output gap?

Answer 9

It occurs when actual growth rates are below potential growth rates.

Question 10

What is a positive output gap?

Answer 10

It occurs when growth rates are higher than the economy can sustain

Question 11

What are output gaps a sign of?

Answer 11

It is a sign that the country is not using its resources efficiently or at their maximum potential.

Question 12

What are the characteristics of a boom?

Answer 12

Low unemployment

Less underemployment

Increasing living standards

Increased level of investment

An increasing rate of inflation

Increased income inequality

Question 13

What are the characteristics of a recession?

Answer 13

Rising unemployment rates

More underemployment

Falling living standards

Falling levels of investment

A falling rate of inflation

Increased income inequality

Question 14

What is are the positive effects of economic growth on consumers?

Answer 14

Rising real incomes

Higher standards of living

May increase life expectancy

Increase in subjective happiness

Question 15

What is are the positive effects of economic growth on firms?

Answer 15

Increased profits

Shareholders might enjoy increased returns

Question 16

What is are the positive effects of economic growth on governments?

Answer 16

More tax revenue

They could use this tax revenue to reduce income inequality

Question 17

What is are the positive effects of economic growth on living standards?

Answer 17

May help to lift people out of poverty

Developing countries might gain foreign investment

Question 18

What is are the negative effects of economic growth on consumers?

Answer 18

If the rate of inflation is higher than the increase in wages then wages would fall

Longer working hours

Subjective happiness may not increase after incomes have risen to a certain level

Increase in health conditions

Question 19

What is are the negative effects of economic growth on firms?

Answer 19

Increase in the demand for workers and raw materials

Increase in wages and price of raw materials

Consequently firm costs will increase

Question 20

What is are the negative effects of economic growth on the economy?

Answer 20

Higher incomes will lead to a decrease in exports which causes an imbalance in the balance of trade

Income may not be evenly distributed after economic growth

Increase in external costs eg environment