Theme 2: 2.5 Economic growth

Question 1

what needs factors are needed for economic growth to occur?

Answer 1

change in the quantity or quality of at least one FOP or them being used more efficiently

Question 2

what are examples of hoe FOP can cause economic growth to occur?

Answer 2

C-investing into machinery will increase productivity and therefore GDP

E-if gov offers tax benefits and grants it will encourage more entrepreneurship

L-discovery of new resources e.g. oil

L-increase size and quality of the workforce

Question 3

difference between potential growth and actual growth

Answer 3

potential=increase in productive capacity whereas actual= the increase in real national income of the economy

Question 4

what is the importance of export-led growth?

Answer 4

Exports are an injection into the circular flow of income leading to a rise in aggregate demand and an expansion of output. helps to raise per capita incomes and reduce extreme poverty especially in developing economies

Question 5

issue with export-led growth

Answer 5

it is vulnerable to changes in demand in other countries or exchange rates

Question 6

what happened to China’s growth after the 2008 global financial crisis?

Answer 6

it slowed and in order to maintain its exports, the gov intervened to keep the currency from rising against other countries

Question 7

define output gap

Answer 7

difference between actual growth and potential growth

Question 8

what does the output gap show?

Answer 8

positive/negative output gaps show potential inflationary/deflationary pressures
boom=inflationary
recession=deflationary

Question 9

what factors do we use to measure the output gap

Answer 9

-unemployment rates
-evidence on labour shortages
-business/industry surveys of capacity utilisation rates
-estimates of potential national income

Question 10

characteristics of a boom

Answer 10

-the economy is growing at a faster rate than the long-run trend rate of economic growth
- tend to be unsustainable and are often followed by a recession

Question 11

characteristics of a recession

Answer 11

-period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate

Question 12

what are the 4 stages in the trade cycle?

Answer 12

-slump
-recession
-recovery
-boom

Question 13

pros of economic growth for consumers

Answer 13

pros:
-income and wealth rise
-people can afford to save money for future consumption
-likely to be increases employment opportunities
-wages might rise as firms try to keep hold of workers

Question 14

pros of economic growth for firms

Answer 14

pros:
-tend to make more profit
-consumer spending rises and they sell more
-can afford more workers and are likely to invest

Question 15

pros of economic growth for governments

Answer 15

-as income rise people pay more income
tax
-they pay less unemployment benefits etc

Question 16

pros of economic growth for current and future living standards

Answer 16

better standard of living due to income rise
gov can invest in areas that increase standard of living for all e.g. libraries, transport

Question 17

costs of economic growth?

Answer 17

income equality-those at the bottom will find it hard to progress

environmental problems-there will be a depletion of natural resources and higher cO2

balance of payments deficit-higher imports

rapid growth-can cause short term rise in prices