2) Economic Growth 2 -MB

Question 1

economic history of: (most recent recessions)
2020, 2008-9, 1991, 1980-81, 1974-75

Answer 1

2020 - Covid
2008-9 - Financial crisis/credit crunch
1991 - Interest rates went up to balance high inflation
1980-81 - Oil Crisis, price of oil went up
1974-75 - Oil Crisis

Question 2

define gross national income (GNI)

Answer 2

GDP plus net income from abroad

Question 3

define seasonal adjustment

Answer 3

a process by which seasonal fluctuations in a variable are smoothed to reveal the underlying trend

Question 4

define GDP per capita

Answer 4

the average level of GDP per head of population

Question 5

define productivity

Answer 5

measure of the efficiency of a factor of production

Question 6

define labour productivity

Answer 6

measure of output per worker, or output per hour worked

Question 7

define capital productivity

Answer 7

measure of output per unit of capital

Question 8

define total factor productivity

Answer 8

the average productivity of all factors, measured as the total output divided by the total amount of inputs used

Question 9

define human capital

Answer 9

the stock of skills and expertise that contribute to a worker’s productivity, which can be increased through education and training

Question 10

define the economic cycle

Answer 10

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

Question 11

define a recession

Answer 11

a situation in which an economy’s real GDP falls in two consecutive quarters

Question 12

define a quarter

Answer 12

a quarter of a year i.e. 3 months

Question 13

what is the value of economic output measured by?

Answer 13

by the prices of goods and services

Question 14

what are measurements of nominal values?

Answer 14

measurements made using actual prices at the time a transaction takes place

Question 15

what do nominal measurements do?

Answer 15

when prices rise, nominal measurements overstate the extent to which an economic variable is increasing

Question 16

how do you measure economic growth?

Answer 16

economists look at real values - values having removed the effects of price changes

Question 17

what is indexing?

Answer 17

it’s taking a bad year to allow easy comparisons to that year

Question 18

what does economic growth tell us?

Answer 18

tells us about the RATE of change of GDP over time

Question 19

what does GDP per capita tell us？

Answer 19

tells us about the LEVEL of GDP per person

Question 20

what happens if the population of a country is increasing while GDP also increases?

Answer 20

the underlying change in GDP per capita can be obscured - and so can change in the standard of living

Question 21

how can you measure the value of a good?

Answer 21

you measure the value by looking at the price

Question 22

examples of economic output:

Answer 22

hospitality in restaurants, haircuts, banking services, trains, taxis

Question 23

define rate

Answer 23

how things are changing compared to before

Question 24

define level

Answer 24

the state compared to before

Question 25

how do you work out price index?

Answer 25

nominal GDP/ real GDP X 100 = price index

Question 26

how do you work out percentage change/ economic growth rate?

Answer 26

(new value/old value -1) X 100

Question 27

how do you work out GDP per capita?

Answer 27

GDP per capita = GDP/population

makes sure values are all in billions/millions/thousands

Question 28

When is short run economic growth possible?

Answer 28

It’s possible if the economy is below full employment

Question 29

How is short run economic growth shown on a PPC diagram?

Answer 29

Is a movement to the PPC from the position within it

Question 30

What can short run economic growth be caused by?

Answer 30

• an increase in AD which in turn, is caused by an increase in components of AD (C,I,G (X-M))
• an increase in short run AS
• only an increase in investment also increases long run economic growth

Question 31

What is long run economic growth caused by?

Answer 31

• it’s caused by an increase in the quantity of a factor of production
• it’s caused by an increase in the quality of a factor of production; an improvement in its productivity

Question 32

How can you achieve long run economic growth through Capital?

Answer 32

Investment in productive manufactured resources, capital, increases potential economic output and therefore long run economic growth

Question 33

How can you achieve long run economic growth through Technology?

Answer 33

Improved technology improves the quality and quantity of economic period and therefore long run economic growth

Question 34

How can you achieve long run economic growth through Efficiency?

Answer 34

An increase in productivity (Labour productivity, capital productivity, total factor productivity) raise aggregate supply and the potential output of an economy, and therefore long run economic growth

Question 35

How can you achieve long run economic growth through Labour?

Answer 35

Migration can increase the size of the Labour force, and education and training (improving human capital) can improve the productivity of workers. Furthermore, education and healthcare, and their associated externalities, improve labour productivity and therefore long run economic growth

Question 36

How does economic growth lead to increased living standards?

Answer 36

Economic growth reflects rising output, perhaps due to increasing demand. Some firms will hire more workers, increasing employment. This increases incomes and living standards for the newly employed. Furthermore, others are incentivised to increase training for workers to improve their human capital and thus their productivity. This means that can then afford to increase workers’ pay, leading to increased living standards

Question 37

Why does a recession decrease living standards?

Answer 37

Recession reflects falling output, perhaps due to falling demand. Some firms will lay off workers, increasing unemployment. This reduces incomes and living standards for the unemployed

Question 38

What are the 2 consequences of economic growth?

Answer 38

1) Economic growth
2) Recession

Question 39

Economic growth evaluation

Answer 39

Improve living standards if the increased GDP is greater proportionally than population growth. Furthermore, living standards are only improved if increased productivity is shared across the working population and not concentrated in the hands of the wealthy or entrepreneurs

Question 40

Recession Evaluation

Answer 40

A longer deeper recession leads to more unemployment, and for longer, reducing living standards to a larger extent

Question 41

What are the benefits of economic growth?

Answer 41

Improved living standards

Question 42

Why are improved living standards good?

Answer 42

Along with higher pay improving living standards, economic growth can lead to a greater ability of a country to afford improvements to the environment, and the ability for its workers to afford more leisure time, better education, and higher quality healthcare

Question 43

What are the disadvantages of competition policy?

Answer 43

Exploiting natural resources may lead to pollution and/or habitat destruction as a cost of improved economic output. Pollution reduces quality of life as air pollution leads to reduced health outcomes, and environmental blight reduces morale

Question 44

Judgements, why do we care about economic growth?

Answer 44

Of all the governments objectives, economic growth is the most important as, fundamentally, it is the main way we measure how the living standards of the country’s population is changing - and hopefully improving