1.1 Definition &n Determinants of Economic Growth

Question 1

What are the aspects of of economic growth?

Answer 1

Economic growth consists of actual growth and potential growth.

Question 2

What are the criteria for an economy to achieve sustained economic growth?

Answer 2

For amn economy to achieve sustained economic growth, both actual and potential economic growth must take place.

Question 3

How is actual growth shown using the AD - AS model and AD - AS analysis?

Answer 3

• actual growth is the increase in national output produced in an economy over a given period of time (measured by the % annual increase in real GDP)
• actual growth can be caused by increases in both aggregate demand and aggregate supply
• explain using the “economy’s output adjustment process” and link to an increase in the RNY of the economy

*note that for an increase in actual growth caused by the AD, it is necessary to mention the k - effect

Question 4

How is potential growth shown using the AD - AS model and AD - AS analysis?

Answer 4

*note that potential growth is the long run expansion of a country’s productive potential

• improvements in potential growth are brought about by increases in QQL; ( quantity of resources, quality of resources and the level of technology employed)
• shown as a rightward shift of the AS curve and an increase in the RNY at the full employment level

Question 5

How is sustained economic growth explained using the AD - AS model and AD - AS analysis?

Answer 5

• show that there is actual growth and that the actual growth is accompanied by potential growth
• increase in actual RNY and an increase in RNY at the full employment level

Question 6

What are the criteria for inclusive growth?

Answer 6

• rate of growth that is sustained over a period of time
• broad - based across economic sectors
• creates productive employment opportunities for the majority of the country’s population

Question 7

How does the k - effect lead to inclusive economic growth?

Answer 7

• when one sector experiences economic growth, many sectors in the economy can experience a rise in induced demand and spending
• creates productive employment opportunities across a broad range of sectors in the economy (lifts the income of many)

Question 8

What are the criteria for sustainable economic growth?

Answer 8

Sustainable growth involves a rate of growth that can be maintain without creating significant economic problems such as depleted resources and environmental problems for the future generations - implies a positive and stable rate of growth over time.

Question 9

What are ways for an economy to experience sustainable growth and what are its motivators?

Answer 9

Sustained economic growth can be achieved when the government and private sectors are willing and able to spend on sustainable practices.

The government and private sectors will act as such when they experience increased tax revenue and income respectively, when they undergo sustained economic economic growth through continuous growth in their aggregate demand and their productive capacity.