Theme 2 - Economic growth

Question 1

What needs to happen to the economy in order for economic growth to occur?

Answer 1

There needs to be an increase in the quality and quantity of the factors of production as an increase in LRAS will increase the level of output.

Question 2

How might land cause economic growth?

Answer 2

The discovery of new resources such as discovery of oil can then be exported out of the country internationally. Given that the resource is scarce but in high demand, the country can charge high prices for the oil and therefore increase net trade and AD.

Question 3

How might an increase in the size of the workforce cause economic growth and give examples.

Answer 3

An increase in immigration means more people who are economically active and of working age therefore increase the quantity of the workforce. This will increase disposable income and consumption in the economy. Increasing retirement age means more people working and govt paying for childcare may encourage mothers to go back to work

Question 4

How might increase the quality of the labour force cause economic growth and give an example.

Answer 4

If the govt was to spend money on education, this may improve the skills of people. This will mean they are less likely to suffer from structural unemployment because they have greater occupational immobility and therefore a broader range of skills.

Question 5

How might a increase in capital cause economic growth?

Answer 5

A country receiving a sustained investment means they have access to new technology. This will increase productivity because more goods are being able to be produced in a given period of time.

Question 6

How might enterprise cause economic growth?

Answer 6

If the government offers benefits or grants, this will encourage the development of businesses, an increase number of jobs made so more goods are able to be produced.

Question 7

How might too much wealth being distributed by governments cause no economic growth?

Answer 7

If a government gives out too many benefits, this is equal to having a job on minimum wage so people will work less. High taxes will be worse for the rich because most of their money will be taken away. This will cause the rich to work less.

Question 8

How might technological advancements cause economic growth?

Answer 8

If technology was to improve, this may mean production is faster or wages can be cut because workers are not needed. This may increase production, increase consumption from new market goods and keep MPC high as more goods for people to buy.

Question 9

Though technological advancements can create economic growth, how might this create a negative impact or no growth?

Answer 9

As wages may have to be cut because technology can do their job in a faster time period, this may cause unemployment of workers. Unemployment may cause loss of skills so decrease in occupational immobility and therefore decrease in consumption.

Question 10

What is actual growth?

Answer 10

The annual % change in GDP.

Question 11

What is potential growth?

Answer 11

The change in productive potential of an economy illustrated on a PFF.

Question 12

What is productive capacity?

Answer 12

This refers to how much an economy can produce in the long run with an increase in resources available or technological advancements.

Question 13

How might a PPF indicate economic growth?

Answer 13

A shift from the PPF curve indicates full employment. A shift from the curve out is growth. A shift from within the curve towards the curve is recovery.

Question 14

How might international trade prompt economic growth?

Answer 14

An increase in exports will lead to an increase in AD because there is injections into the economy. This will lead to firms wanting to invest more and so they will demand more labour to meet supply.

Question 15

Why might firms within the UK need to be efficient?

Answer 15

Firms need to be efficient because dealing with international markets can be risky given that they is a lot more markets internationally.

Question 16

What is a constraint that may impact LRAS?

Answer 16

some countries like African countries may suffer from constraints where their isn’t a lot of capital markets meaning they are unable to raise finance needed for economic development.

Question 17

What are the 2 types of measures upon measuring GDP?

Answer 17

Income - adding up all the incomes in an economy. income = output = expenditure
Expenditure - adding up The components of AD

Question 18

What is the distinction between nominal and real?

Answer 18

Nominal is the actual value not adjusted for inflation whereas Real is adjusted for inflation

Question 19

What is the distinction between total and per capita?

Answer 19

Total GDP is the total value of goods produced within an economy but per capita means the value of goods divided by inflation in order to get an average of individuals incomes.

Question 20

What is the distinction between value and volume?

Answer 20

Volume is the total number of goods produced in an economy whereas value is the how much the goods sold are worth.

Question 21

What is GNI?

Answer 21

Taking the GDP figure and adding income paid into the country by other countries for such things as interest and dividends.

Question 22

What is GDP?

Answer 22

Total output of goods produced within an economy over a given period of time

Question 23

Why might comparing the GDP of two countries be less efficient than comparing GDP per capita?

Answer 23

GDP measures the value of goods and services produced in an economy but this might show inequalities because one area may produce more than another. However, GDP per capita may show average rates of incomes per person showing population differences.

Question 24

What is purchasing power parities?

Answer 24

It compares the costs of living between 2 countries. It takes the basket of goods cost in one country ensuring they have the same currencies and the cost of the basket of goods in another. This is then put into a ratio.

Question 25

How might GDP correlate with a benefit to peoples living standards?

Answer 25

Increase in GDP means increase in output of goods and services. This may increase demand for labour and so employment increases. More people have more money to spend on the goods and services increasing standard of living.

Question 26

Why might measuring GDP to see peoples standards of livings be bad?

Answer 26

Inequalities - parts of a population may be richer therefore contributing more to GDP than poorer areas
Negative externalities - such as pollution, stress levels or congestion is not taken into account which could decrease standard of living

Question 27

What are the 6 factors that supposedly impact happiness

Answer 27

Real GDP per capita, healthy life expectancy, having someone to count on, freedom to make life choices, freedom from corruption and generosity.

Question 28

What is the Easterlin Paradox?

Answer 28

This is when happiness and income is originally positively related up until the point that an individuals basic needs have been met. Past this stage, every extra income may not increase satisfaction to an individual therefore suggesting after a certain point, national happiness does not increase further with a rise in income