Economic Growth Part 1

Question 1

What can cause short run growth?

Answer 1

Any increase in AD
Any increase in SRAS

Question 2

What can cause long run growth?

Answer 2

• Increase in the quality and quantity of the factors of production, causes positive economic growth
  
  • Increase in LRAS
  • Increase in PPF

Question 3

What is land defined as?

Answer 3

The land itself and all the natural resources that come with it

Question 4

When is economic growth likely to occur?

Answer 4

If there is an increase in the quantity or quality of labour (workers)

Question 5

What can cause an increase in labour force?

Answer 5

• Increase in the birth rate (takes place over the long run, not immediate)
• Increases in participation rates
• Increases in immigration

Question 6

What effect does the birth rate have on labour?

Answer 6

• A decrease in birth rate can reduce the size of the labour force
• An increase in the birth rate will lead to an increase in the size of the labour force, in the long run

Question 7

What are participation rates?

Answer 7

The proportion of the population of working age who are either in work or seeking work

Question 8

What is an easy way of increasing he labour force?

Answer 8

Employing migrant

It should be noted that increasing the size of the labour force may increase output but will not necessarily increase economic welfare.

Question 9

Why may an increase in output not necessarily increase economic welfare?

Answer 9

Increased income may have to be shared out amongst more people, causing little or no change in income per person.

Question 10

Why are increases in human capital essential

Answer 10

Workers need to be sufficiently educated. This is so they can cope with the demands of the existing stock of capital.
Workers need to be flexible
- Flexibility requires broad general education as well as in-depth knowledge of a particular task.
-Workers need to be able to contribute to change.
- An ability of all workers to take responsibility and solve problems will be increasingly important in the future.

Question 11

Why does the stock of capital in the economy need to increase over time?

Answer 11

If you want sustainable economic growth the stock of capital in the economy has to increase

Question 12

How do technological processes increases economic growth?

Answer 12

• It cuts the average cost of production for a product.
• It creates new products for the market.
• Without new products, consumers would be less likely to spend increases in their income.
• Without extra spending, there would be less economic growth as there would not be an increase in AD

Question 13

What is economic efficiency defined as

Answer 13

Economic efficiency is defined as the way in which the factors of production are combined to produce goods and services

Question 14

In which types of economies are there the most efficiency

Answer 14

• Market economies, this is because they promote competition and there is a profit motive
• They lead to more efficient production and drive less efficient firms out of the market, which will allow them to increase their market shares

Question 15

What does competition lead to?

Answer 15

Competition will lead to more efficiency

Question 16

Which policies could increase competition?

Answer 16

Privatisation
Deregulation
Control of monopolies

Question 17

How does innovation have an effect on economic growth?

Answer 17

Innovation will increase efficiency therefore government policies which promote innovation can lead to an increase in economic growth