Theme 2: Economic Growth

Question 1

Economic growth

Answer 1

The expansion of the productive potential of the economy.

Question 2

6 factors that cause economic growth

Answer 2

Improving labour force -Larger labour force -Improved technology -More investment -Discovering new resources -Incentives for enterprise

Question 3

When does a country have a comparative advantage?

Answer 3

When a country can produce goods and services at a lower opportunity cost than another.

Question 4

What does export led growth mean?

Answer 4

It means that the economy is unbalanced. As there is a surplus on the current account on the balance of payments. As net injections are often unsustainable.

Question 5

Actual growth

Answer 5

The percentage increase in a country’s real GDP and it is usually measured annually. It is caused by increases in AD.

Question 6

Potential output

Answer 6

What the economy could produce if resources were fully employed.

Question 7

What causes long term trends in growth rates?

Answer 7

The expansion of the productive potential of an economy. Increase in AS.

Question 8

Negative output gap

Answer 8

When the actual level of output is less than the potential level of output.

Question 9

Positive output gap

Answer 9

When the actual level of output is greater than the potential level of output.

Question 10

What causes a positive output gap

Answer 10

Resources being used beyond the normal capacity, eg if labour works overtime.

Question 11

6 Characteristics of a boom

Answer 11

1-High rates of economic growth 2-Near full capacity or positive output gaps 3-Near full employment 4-Demand pull inflation 5-High rates of investment 6-Improvements in government budgets

Question 12

6 Characteristics of a recession

Answer 12

1-negative economic growth 2-lots of spare capacity and negative output gaps 3-demand deficient unemployment 4-Low inflation rates 5-Government budgets worsen 6-Less spending and investment

Question 13

Costs of economic growth on consumers

Answer 13

Those on low or fixed incomes might feel worse off if there is high inflation and inequality could increase. -Demand pull inflation -More shoe leather costs -Benefits might not last due to law of diminishing returns

Question 14

Benefits of economic growth on consumers

Answer 14

Average consumers income increases. -consumers feel More confident.

Question 15

Costs of economic growth on firms

Answer 15

Keep having to change their prices to meet inflation ‘menu costs’

Question 16

Benefits of economic growth on firms

Answer 16

Make higher profits -new tech due to investment might lead to Improved productivity. -Take advantage of economies of scale. -Market is More competitive which will Make them More efficient.

Question 17

Costs of economic growth on the government

Answer 17

Increase spending on healthcare if consumption of demerit goods increase.

Question 18

Benefits of economic growth on the government

Answer 18

Government budget might improve.

Question 19

Costs of economic growth on the current and future living standards.

Answer 19

Damage toe the environment

Question 20

Benefits of economic growth on the current and future living standards.

Answer 20

public services increase.