ECONOMIC GROWTH 2.5

• What are the four factors of production?

  Land, labour, capital, enterprise
• What is required for potential economic growth to occur?

  Increase in quality or quantity of production factors
• What does an increase in LRAS indicate?

  It increases the potential output level
• What can increase economic growth?

  Any factor that increases LRAS
• How does the discovery of new resources affect economic growth?

  It increases economic growth
• Why do developing countries grow more from exploiting new resources?

  They lack existing resources to exploit
• What has contributed to Saudi Arabia's economic growth?

  Discovery of oil
• How does an increase in the quality or quantity of labour affect economic growth?

  It improves economic growth
• What factors can change the size of the workforce?

  Immigration, demography, participation rates
• How does raising the retirement age affect economic growth?

  It increases the population of working age
• How can the government encourage mothers to return to work?

  By providing free childcare
• What role does immigration play in economic growth?

  It provides skilled workers for the economy
• Why is improving the quality of labour important for economic growth?

  It increases efficiency and output per worker
• How does education improve labour quality?

  It provides necessary skills for efficiency
• What is structural unemployment?

  Unemployment due to lack of skills
• How do skilled workers contribute to economic growth?

  They innovate and adapt to changes
• What is the effect of sustained investment on a country?

  Access to new technology and productivity
• Why might some investments not lead to increased GDP?

  Some investments may be unsuccessful
• How do tax benefits and grants affect enterprise development?

  They encourage business development and job creation
• What happens if there is too much wealth distribution?

  It reduces the incentive to work hard
• How does technological progress affect production costs?

  It lowers average production costs
• What is the relationship between consumption and new products?

  New products increase consumption levels
• How does efficiency contribute to economic growth?

  It allows more goods to be produced
• How can competition ensure efficiency?

  It forces producers to lower prices or improve quality
• What can prevent the market mechanism from working properly?

  Lack of protection of property rights
• How can civil wars or natural disasters affect economic growth?

  They can lead to negative growth
• Why is efficiency lacking in a communist society?

  The government is the only supplier
• What is actual growth?

  Percentage change in GDP
• What is potential growth?

  Change in productive potential over time
• What determines productive potential?

  The factors of production
• What does an outward shift of the PPF indicate?

  Economic growth
• What is the difference between economic recovery and economic growth?

  Recovery moves from inside to on the PPF
• How can AD affect economic growth?

  Through export-led growth
• Which countries have benefited from export-led growth?

  Germany, Japan, and China
• What happens when export levels are sustained?

  Firms invest and demand for labour increases
• Why must British firms become more efficient?

  To compete in the international market
• What is the long run trend rate of growth?

  Average sustainable rate of economic growth
• What is an output gap?

  The difference between actual and potential growth
• What does a positive output gap indicate?

  SRAS is higher than LRAS
• How do classical economists view positive output gaps?

  They believe it will be filled by long-run growth