factors determining the relative rate of eco. growth (3) Flashcards
1
Q
macroeconomic factors determining the relative rate of economic growth (in developed economies)
A
- monetary policy (e.g. interest rates) -> lower interest rates -> COB + RFS decr -> more investment (15% AD) in capital + R&D + consumption (60% AD) in mortgages + loans -> AD increased -> real GDP up -> actual eco. growth -> +ve multiplier -> discourages FDI -> reduced demand for currency = depreciation -> E=cheap; I=expensive -> E = more price competitive -> improved CAD -> contributes to net exports
2
Q
evaluate the macroeconomic factors determining the relative rate of economic growth
A
- trade off inflation + unemployment -> offsets growth
- depends on business/consumer confidence -> no spending or investment
- if imports are price inelastic (e.g. lack of available substitutes) -> net exports fall -> slows down eco. growth
- excessive borrowing -> market bubbles
3
Q
microeconomic factors determining the relative rate of economic growth (in developed economies)
A
- investment in education + training -> improvement in human capital -> incr labour productivity -> lower unit labour costs -> reduced costs (variable) -> higher profitability -> encouages innovation + technological advancement -> incr dynamic efficiency -> contributes to economic growth -> more skilled workers offered higher wages -> incr disposable income -> more consumption (AD) -> contributes to eco. growth
- more competition (depends on market structure) -> high competition -> incentive to innovate + compete with lower prices -> incr consumer surplus -> higher consumption
4
Q
evaluate the microeconomic factors determining the relative rate of economic growth (in developed economies)
A
- depends on mobility of labour -> skilled workers unable to relocate -> labour shortages in one area and surpluses in the other -> risk of un/underemployment
- oligopolies or monopolies may dominate -> less competition = higher prices -> consumer surplus decr -> harms living standards
