Causes of Growth

• What is short run economic growth?

  When the economy is using up spare capacity - increse in real output (actual growth).
• What is long-run economic growth?

  An increase in the productive potential of an economy (potential growth).
• How is economic growth being low a cause of a fiscal deficit?

  Government spending is more as government wants to stimulate the economy e.g. subsidies, improving infrastructure.
• How is decreased consumer spending a cause of a fiscal deficit?

  • The government may try to subsidise industries to reduce costs of production so that it can feed through to lower prices for consumers.
  • However, this makes the government spend more than they are earning.
  • Also less revenue from VAT.
• How is economic shocks a cause of a fiscal deficit?

  Increased spending on benefits to households and furlough scheme (80% of income given to employees).
• How is lack of stability a consequence of a fiscal deficit?

  May lead to less FDI, less business investment, less consumption due to low consumer & business confidence.
• How is slower growth spending increasing as a fiscal stimulus a consequence of a fiscal deficit?

  The government increases spending to ensure the productive potential of the economy doesn’t decline due to copital depreciation, needed if firms aren‘t investing in capital.
• How is spending on public services increase, for COVID this was an increase in health spending, PPE, technology for schools, etc a consequence of a fiscal deficit?

  • Ensure not a decrease in quality/quantity of labour, the governemnt ensures that the workforce is safe & continues to work safely if possible.
  • Quality of education unchanged where possible.
• How is an increase in national debt a consequence of a fiscal deficit?

  Fiscal deficit requires borrowing/quantitative easing/sales of bonds/investors.