2.5 - Economic Growth

Question 1

What causes export led growth

Answer 1

economic growth can be led by selling more exports to foreign countries which improves the net trade component of AD, export-led growth is considered a good way for developing countries to establish themselves

Question 2

What is the difference between the actual and long term trend growth rates called

Answer 2

The output gap

Question 3

Why is the output gap difficult to measure

Answer 3

the exact position on the LRAS is unknown and the initial estimates of the real GDP are often inaccurate. Some economists believe it is so hard to measure that it is not a valid concept to use for the purpose of economic policy. It is impossible to place a monetary value on the variables of machinery, workers and technology

Question 4

What is stagnation

Answer 4

once the boom is in full flow eventually it starts to become unsustainable and people start to worry that house prices and share prices are too high. They no longer reflect the real value of assets but instead are speculative bubbles (over optimistic hype). Some firms have over-invested as a result and returns on their investment start to be below forecast, suddenly some entrepreneurs get cold feet and start to worry, they might start to put off investment projects and some workers may be told to take shorter shifts

Question 5

What firms lose out from economic growth

Answer 5

Firms selling inferior goods