2.5 Economic growth

Question 1

Potential economic growth vs actual economic growth

Answer 1

Potential economic growth is an increase in the productive capacity of an economy
Actual economic growth is growth of real GDP

Question 2

Output gap

Answer 2

The difference between real GDP and potential real GDP

Question 3

Positive output gap

Answer 3

A short run phenomenon where firms respond to an increase in AD by asking workers to work overtime

Question 4

Human capital

Answer 4

The stock of skills and expertise that contribute to a worker’s productivity - it can be increased through education and training

Question 5

Trade cycle

Answer 5

A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern

Question 6

Trade cycle diagram

Answer 6

Question 7

Boom

Answer 7

The expansionary phase of the trade cycle

Question 8

Export-led growth

Answer 8

A strategy for achieving rapid economic growth thorough the promotion of export activity