lesson 8

Question 1

What is the equation for AD?

Answer 1

C+I+G+(X-M)

Question 2

What does growth refer to?

Answer 2

The increase in real national output over time

Question 3

What is growth measured by?

Answer 3

The percentage change in real GDP

Question 4

Short run growth is associated with what type of growth? (2 types)

Answer 4

Demand side
Actual growth

Question 5

What do we have when we have short run growth?

Answer 5

Actual economic growth

Capacity is fixed

Unused/ Spare capacity

Question 6

Long run growth is associated with what type of growth? (2 types)

Answer 6

Supply side
Potential growth

Question 7

In the long run how can economic growth be achieved in terms of resources?

Answer 7

Changing the factor inputs which results in EXPANSION OF PRODUCTIVE CAPACITY

This is referred to by economists as potential economic growth

We can increase maximum potential output through increasing quality and quantity of resources

Question 8

Long run growth supply side can be achieved through what?

Answer 8

Investment

Technical Progress

Increase in labour force size

Productive efficiency increase

Enterprise

Economic incentives

Question 9

What graph do we use for immigration and why?

Answer 9

We use the triple shift for immigration as we have an increase in demand and supply

Question 10

Actual growth = what shifting and what SIDE is it?

Potential growth = what shifting and what SIDE is it

Answer 10

Actual growth=AD shifting=Demand side

Potential growth=LRAS shifting=Supply side

Question 11

What are the causes of economic growth?

Answer 11

1) increased consumption ➡️ signals to firms to invest more

2) increase in government spending ➡️ can increase AD, raise productivity and increase LRAS

3) increase in investment ➡️ increase AD and then capital is used to increase LRAS

4) increasing productive potential in many ways ➡️ investment, technology and education/ training

Question 12

Short run causes for economic growth
(All of these will boot AD, supply side, and give actual growth)

Answer 12

Consumption increases (consumer confidence increases and interest rates fall)

Government spending (stimulates output)

Businesses investing (confidence, sustained increase in demand and low interest rates)

Net exports increase (international competitiveness increases and improves)

All of these will boot AD, supply side, and give actual growth

Question 13

Long run causes for economic growth
(All of these will boot LRAS, supply side, and give potential growth)

Answer 13

Investment in human capital (training and education, improvement in productivity)

Increases in net investment (capital stock widens or deepens)
Widen: more of it
Deepen: increased quality

All of these will boot LRAS, supply side, and give potential growth

Question 14

Why do different countries grow at different rates?

Answer 14

Capital, Investment, technological progress and investment in human capital

LICs find it difficult to invest, rely on aid, as their focus is basic needs

Stability and security

Export performance on large external markets

Level of international debt

Question 15

If an economy is performing below its productive potential…

Answer 15

Actual growth is below potential and we have a negative output gap

Question 16

If an economy is performing above its productive potential…

Answer 16

It is growing strongly and we have a positive output gap where actual growth is above the economies productive potential

Question 17

What are two benefits of Economic growth?

Answer 17

Governments will receive more tax revenue as there is a decrease in unemployment so they can increase their spending on public services.

Better living standards

Question 18

Easy example of an expansionary monetary policy

Answer 18

Lower tax rates/ interest rates

Question 19

The sentence for furlough he wants us to memorise

Answer 19

Furlough was a direct injection with multiplied effects and increase AD and decrease in unemployment