Economic growth

• How is economic growth defined?


  As the expansion of the productive potential of the economy.
• How can economic growth be depicted graphically?


  By an outward shift in the PPF or LRAS curve.
• What is economic growth measured by?


  The annual change in real GDP.
• What are the factors that cause economic growth?

  • Improvement in the quantity or quality of factors of production
  • Larger labour force due to migration or birth rates
  • Improved technology for more productivity
  • Increased investment in machinery
  • Discovery of new resources
  • Incentives for enterprise like tax breaks

  
• What is actual growth?


  The percentage increase in a country’s real GDP, usually measured annually.
• What is potential growth?


  The long run expansion of the productive potential of an economy.
• What causes potential growth?

  Increases in AS.

  
• What is export-led growth?


  When countries open up their economies to the international market.
• Which country is known for its export-led growth?


  China.
• How do individual decisions affect economic growth?


  A firm's decision to increase investment can lead to growth.
• What is comparative advantage?


  When a country can produce goods at a lower opportunity cost than another.
• What is the initial effect of international trade on AD?


  It initially increases AD, leading to short-term growth.
• What is the relationship between export-led growth and the current account?


  It creates a surplus on the current account of the balance of payments.
• What happens if there is a recession in a major export market?


  Exports will fall and so will economic growth.
• What is an output gap?


  The difference between the actual level of output and the potential level of output.
• What is a negative output gap?


  When the actual level of output is less than the potential level of output.
• What does a negative output gap indicate about inflation?

  It puts downward pressure on inflation.
• What is a positive output gap?


  When the actual level of output is greater than the potential level of output.
• What can cause a positive output gap?


  Resources being used beyond normal capacity, such as overtime work.
• What is the business cycle?


  The stage of economic growth that the economy is in, including booms and busts.
• What happens during a boom?


  Economic growth is fast, which could be inflationary or unsustainable.
• What occurs during a recession?


  The real output in the economy falls, leading to negative economic growth.
• How might governments respond during recessions?


  By increasing spending to stimulate the economy.
• What are the characteristics of a boom?

  High rates of economic growth, near full capacity, and demand-pull inflation.
• How is a recession defined in the UK?


  As negative economic growth over two consecutive quarters.
• What are the characteristics of a recession?


  Negative economic growth, lots of spare capacity, and low inflation rates.
• What impact does economic growth have on consumers?


  It does not benefit everyone equally, and those on low incomes may feel worse off.
• What is the law of diminishing returns?


  It states that the utility from consuming a good diminishes as more of the good is consumed.
• How can firms benefit from economic growth?


  They might make more profits, which could increase investment.
• What might happen to government budgets during economic growth?


  They might improve due to higher tax revenues and less spending on welfare payments.
• What are the potential environmental impacts of high levels of economic growth?


  It could lead to damage to the environment due to increased negative externalities.
• How can economic growth affect public services?


  Higher tax revenues can improve public services, increasing life expectancy and education levels.
• What are the benefits and costs of economic growth for consumers?


  Benefits:

  • Higher average consumer income
  • Increased confidence leading to higher consumption

  Costs:

  • High inflation affecting low and fixed incomes
  • Increased inequality
  • More time spent finding the best deals

  
• What are the benefits and costs of economic growth for firms?


  Benefits:

  • Increased profits leading to more investment
  • Development of new technologies

  Costs:

  • More menu costs due to inflation
  • Increased competition in export markets

  
• What are the benefits and costs of economic growth for the government?

  Benefits:

  • Improved government budget due to higher tax revenues
  • Increased spending on healthcare

  Costs:

  • Potential need for increased spending on demerit goods

  
• What are the impacts of economic growth on current and future living standards?


  • Higher average wages and quality of goods
  • Improved public services
  • Potential environmental damage
  • Increased consumer concern for the environment