econ theme 2 economic growth

• What is economic growth defined as?

  Expansion of the productive potential of the economy
• How can economic growth be depicted?

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

  By the annual change in real GDP
• What factors cause economic growth?

  • Improvement in quantity or quality of production factors
  • Increase in efficiency of resource use
  • Better quality labour force due to education
  • Larger labour force from migration or birth rates
  • Improved technology for productivity
  • More investment in machinery
  • Discovery of new resources
  • Incentives for enterprise like tax breaks
• What is actual growth?

  Percentage increase in a country’s real GDP
• What causes actual growth?

  Increases in aggregate demand (AD)

  
• What is potential growth?

  Long run expansion of productive potential
• What causes potential growth?

  Increases in aggregate supply (AS)
• What is potential output?

  What the economy could produce if fully employed
• What is export-led growth?

  Growth from opening economies to international markets
• Which country is known for export-led growth?

  China
• How do individual decisions affect economic growth?

  Firms' investment decisions can lead to growth
• What is comparative advantage?

  Producing goods at a lower opportunity cost
• How does international trade affect economic growth?

  Encourages specialization and increases world output
• What is the relationship between AD and short-term growth?

  Increases in AD lead to short-term growth
• What is the relationship between AS and long-term growth?

  Increases in AS lead to long-term growth
• What is an output gap?

  Difference between actual and potential output

  
• What is a negative output gap?

  Actual output is less than potential output

  
• What does a negative output gap indicate?

  Downward pressure on inflation and unemployment

  
• What is a positive output gap?

  Actual output is greater than potential output

  
• What can cause a positive output gap?

  Resources used beyond normal capacity
• What is the business cycle?

  Stages of economic growth in an economy
• What happens during a boom?

  Fast economic growth, possibly inflationary
• What occurs during a recession?

  Real output falls and negative growth occurs
• How might governments respond during recessions?

  Increase spending to stimulate the economy
• What are characteristics of a boom?

  High growth, near full capacity, demand-pull inflation
• What defines a recession in the UK?

  Negative growth over two consecutive quarters
• What are characteristics of a recession?

  Negative growth, spare capacity, low inflation
• How does economic growth affect consumers?

  Not everyone benefits equally; inflation may rise
• What is the law of diminishing returns?

  Utility decreases as more of a good is consumed
• How do firms benefit from economic growth?

  Higher profits may lead to increased investment
• What might governments do with increased tax revenues?

  Spend more on public services and healthcare
• What are potential environmental impacts of economic growth?

  Increased negative externalities from production
• How can economic growth affect living standards?

  Higher incomes can lead to better quality goods
• What are the microeconomic consequences of economic growth?

  Impacts on consumers, workers, and firms