Economic Growth

• How is economic growth defined?

  Economic growth is defined as the expansion of the productive potential of the economy.
• How can economic growth be depicted graphically?

  It can be depicted by an outward shift in the PPF or an outward shift in a country’s LRAS curve.
• How is economic growth measured?


  It is 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
  • Increase in efficiency of resource use
  • Better quality labour force due to higher education
  • Larger labour force from migration, birth rates, or improved participation
  • Improved technology for more productive resource use
  • More investment in machinery
  • Discovering new resources
  • Incentives for enterprise like tax breaks or subsidies

  
• What is actual growth?

  Actual growth is the percentage increase in a country’s real GDP, usually measured annually.
• What causes actual growth?

  It is caused by increases in aggregate demand (AD).
• What is potential growth?

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

  It is caused by increases in aggregate supply (AS).
• What is the potential output of an economy?

  It is what the economy could produce if resources were fully employed.
• What is export-led growth?

  Export-led growth occurs when countries open up their economies to the international market.
• Which country is a famous example of export-led growth?

  China
• How do individual decisions affect economic growth?

  A firm's decision to increase investment can lead to growth, but it must be undertaken by multiple individuals to have a significant impact.
• What is comparative advantage?

  A country has comparative advantage when it can produce goods and services at a lower opportunity cost than another country.
• How does international trade contribute to economic growth?

  It allows countries to specialize where they have a comparative advantage, increasing world output and lowering average costs.
• What is the relationship between AD and short-term growth?

  Increases in AD initially increase economic growth, leading to short-term growth.
• What does export-led growth mean for a country's current account?

  It means there is a surplus on the current account of the balance of payments.
• What is a negative output gap?

  A negative output gap occurs when the actual level of output is less than the potential level of output.
• What does a positive output gap indicate?

  A positive output gap occurs when the actual level of output is greater than the potential level of output.
• What are the characteristics of a boom in the business cycle?

  High rates of economic growth, near full capacity, positive output gaps, and demand-pull inflation.
• What defines a recession in the UK?

  A recession is defined as negative economic growth over two consecutive quarters.
• What are the characteristics of a recession?


  Negative economic growth, lots of spare capacity, negative output gaps, demand-deficient unemployment, and low inflation rates.
• What are the benefits and costs of economic growth for consumers?

  Costs:

  • Economic growth does not benefit everyone equally.
  • High inflation may negatively affect those on low and fixed incomes.
  • Increased shoe leather costs due to rising prices.
  • Diminishing returns on consumption.

  
  

  Benefits:

  • Higher average consumer income.
  • Increased confidence leading to higher consumption.
  • Improved living standards.

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

  Costs:

  • Menu costs due to higher inflation.

  
  

  Benefits:

  • Increased profits leading to more investment.
  • Higher levels of business confidence.
  • Development of new technologies to improve productivity.
  • Advantages of economies of scale.

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

  Costs:

  • Increased spending on healthcare if demerit goods consumption rises.

  
  

  Benefits:

  • Improved government budget due to higher tax revenues.
  • Fewer welfare payments required.

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

  Costs:

  • Potential environmental damage due to negative externalities.

  
  

  Benefits:

  • Increased consumer incomes leading to higher quality goods and services.
  • Improved public services from higher tax revenues.
  • Potential increase in life expectancy and education levels.

  
• How does economic growth have microeconomic consequences?

  It impacts consumers, workers, and firms within the economy.