Economic Growth

What is economic growth?

an increase in the amount of goods and services produced per head of the population over a period of time

What is the national output?

The total value of output of goods and services produced

What are the three ways national output can be calculated?

output, income or expenditure.

What is GDP (Gross Domestic Product)?

the total market value of all final goods and services provided within an economy by its factors of production in a given period of time.

What is nominal GDP?

the value of output produced in an economy in a period of time, measured at their current market values or prices

What is real GDP?

the value of output produced in an economy in a period of time, measured assuming the prices are unchanged over time.

What is GDP per head/capita?

measures the average output/ income per person in an economy it provides a good measure of the living standards of an economy.

Formula for GDP per capita?

GDP / Population

What does an increase in real GDP over time indicate?

It indicates economic growth as more goods and services are being produced.

What does economic growth imply about resource utilization?

The economy is utilizing its resources better or its productive capacity has increased.

Causes of economic growth:

Discovery of more natural resources, investment in new capital and infrastructure, technical progress, increasing the quantity and quality of FOP, and reallocating resources

How does the discovery of more natural resources contribute to economic growth?

It increases production capacity, allowing economies to grow rapidly

How does investment in new capital and infrastructure aid economic growth?

By expanding production capacity through machinery, buildings, and modern infrastructure like airports and roads.

What is the role of technical progress in economic growth?

New inventions and processes boost productivity, increasing output and efficiency in industries.

How does increasing the quantity and quality of factors of production help economic growth?

A more skilled and productive workforce, better capital, and natural resources raise GDP in the long run.

How does reallocating resources improve economic growth?

By shifting resources from less-productive to more-productive uses.

What is one benefit of economic growth related to goods and services?

Greater availability of goods and services to meet consumer needs.

How does economic growth affect employment?

It increases employment opportunities and incomes.

How can economic growth impact living standards in developing countries?

It can improve living standards and reduce poverty

How does economic growth affect business performance?

It leads to increased sales, profits, and business opportunities.

What encourages investment in capital goods during economic growth?

Rising output and demand

What impact does economic growth have on inflation?

It can lead to low and stable inflation if output growth matches demand.

How does economic growth affect government revenue?

It increases tax revenue, enabling more public investment.

How can technical progress negatively affect employment?

It can replace labor with capital, causing a rise in unemployment, especially in highly populated underdeveloped and developing economies.

What happens to natural resources when production rises rapidly?

Natural resources may get depleted over time due to overuse.

What are negative externalities of increased production?

Pollution, deforestation, and health problems

What happens if demand grows faster than productive capacity?

Economic growth may cause inflation.

How does economic growth affect income distribution in developing countries?

It can widen income inequalities, benefiting the rich more than the poor.

What is a result of uneven distribution of economic growth benefits?

Relative poverty may rise.

What is sustainable economic growth?

Growth that doesn’t cause significant economic or environmental issues, like resource depletion or environmental degradation.

What defines a recession?

A period of negative economic growth where real GDP falls.

What are two major consequences of a recession?

Unemployment rises and incomes fall.

What usually triggers a recession after a boom?

High inflation leading to reduced consumer spending.

How do rising wages and raw material costs affect businesses in a recession?

They cause businesses to cut production and lay off workers.

What are the benefits of economic growth?

Greater availability of goods and services, increased employment, improved living standards, increased sales and profits, low and stable inflation, and increased tax revenue

What are causes of a recession?

Financial crisis, rise in interest rates, fall in real wages, fall in consumer/business confidence, cut in govt spending, trade wars, supply side shocks, and black swan events

What are consequences of a recession?

Firms go out of business, unemployment, fall in income, rise in poverty and inequality, fall in asset prices, higher budget deficit, and permanently lost output

What are the two main types of policies used to promote economic growth?

Expansionary fiscal and monetary policies (demand-side) and supply-side policies.

When should supply-side policies be used to promote economic growth?

When poor quality of human capital limits the economy's productive capacity.

Give an example of a supply-side policy to improve economic growth.

Investment in education and vocational training to improve labour quality and productivity.

What policies should be used when slow growth is due to low demand?

Cutting income taxes, indirect taxes, and interest rates to boost spending.

What is a major risk of demand-side policies that push growth above the long-run trend?

They can cause inflation and may lead to a recession if not controlled.

Why do supply-side policies take time to show results?

Because improvements like better education and training take years to boost productivity.

How effective are supply-side policies during a recession?

They are less effective because they don’t address the fundamental problem of weak demand.

What are some measures supply-side policies use to increase investment and flexibility?

Increasing labour market flexibility and encouraging investment.

Why might firms be reluctant to invest even with supply-side incentives?

Due to insufficient demand in the economy.