Economic growth

Question 1

Economic growth definition + how it is measured

Answer 1

Economic growth is defined as the increasing capacity of the economy to satisfy the wants of its members. It is measured by GDP.

Question 2

3 macroeconomic objectives

Answer 2

• Sustainable economic growth 3-4%
• Price stability-2-3%
• Unemployment -4.5%

Question 3

Gross Domestic Product definition

Answer 3

The total market value of all final goods and services produced in a country during a period of time (usually a year).

Question 4

Difference between nominal and real GDP

Answer 4

Real is when changes in prices (inflation) have been taken into account when calculating GDP figures. Nominal GDP doesnt take into account any inflation or deflation

Question 5

4 determinants of economic growth and quantitative and qualitative factors that affect their capacity to produce goods and services.

Answer 5

Quantitative means use of more resources, while qualitative means use of better resources.

• LAND
  Quantitative:
  -Trade
  -Exploration
  Qualitative:
  -Research
  -Technology
• LABOUR
  Quantitative:
  -Natural population growth
  Qualitative:
  -Education
  -Training
• CAPITAL
  Quantitative:
  -Investment
  Qualitative:
  -Foreign investment
• ENTERPRISE
  Quantitative:
  -Reduce tax rates
  Qualitative:
  -Management training

Question 6

Problems of GDP as a measure of growth

Answer 6

• Measuring non market items including various activities like stay at home parents looking after children and volunteer work
• Doesn’t consider changes in happiness experienced by individuals.
• Increasing economic ‘bads’. GDP doesn’t distinguish between productive activities and negative activities. For instance, GDP will increase if a country experiences a rise in healthcare spending due to an increase in illness and pollution-related diseases

Question 7

Alternative measures of economic growth

Answer 7

• Happy Planet Index
• Human Development Index

Question 8

Benefits and costs of economic growth

Answer 8

Benefits of Economic Growth:
- Increasing real income and material welfare
- Higher quality goods and services
- More economic opportunities
- A taxation dividend to government
Costs of Economic Growth:
- Inequalities of who gets the raised living standard
- Inflationary pressures
- Structural change
- Economic ‘bads’