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Question 1

Short run economic growth

Answer 1

1. Productive capacity is fixed Refers to fluctuations in real GDP around this productive capacityThe fluctuations are evidence of the economic cycle

Question 2

What is long run economic growth

Answer 2

Refers to the trend increase in real GDP.Represents an increase in productive capacity.

Question 3

What may long run economic growth indicate (causes)

Answer 3

An increase in factor availability over time ( an increase in the size of workforce or investment that increases the economy’s stock of capital goods).An increase in the productivity of these factors of production.

Question 4

How is short run economic growth measured?

Answer 4

Measured as annual changes in real GDP (% change)

Question 5

How is long run economic growth measured?

Answer 5

By averaging annual growth rates over a large period of time.

Question 6

What are 4 of the causes of long run economic growth?

Answer 6

1. New natural resources 2. New technology - increases productivity 3. Increase in the quality of labour 4. Innovation - research and development

Question 7

What is a boom?

Answer 7

A period of very high levels of economic activity

Question 8

Characteristics of a boom

Answer 8

1. High rate of economic growth (+ve output gap)2. High demand (high household consumption)3. Low unemployment 4. Inflationary pressure (“overheating”)5. High confidence in the economy6. Shortages of workers -> high wages 7. High capital investment8. Increase in imports

Question 9

Characteristics of a recession

Answer 9

1. Fall in demand (decreased household consumption)2. Low inflation 3. Rise in unemployment4. Low confidence in the economy 5. Firms may go out of business6. Reduced investment from many firms

Question 10

What is a slump?

Answer 10

The bottom of the economic cycle which represents a period of serious economic decline

Question 11

Characteristics of a slump

Answer 11

1. Low negative growth (-ve output gap)2. Low demand3. Low inflation4. High unemployment 5. High rate of bankruptcy

Question 12

What is a recovery?

Answer 12

A period in which GDP starts to rise again

Question 13

Characteristics of a recovery

Answer 13

1. Demand increases2. Unemployment falls3. Inflation starts to rise4. Confidence in the economy increases5. Capital investment increases.

Question 14

Benefits of economic growth (9)

Answer 14

1. Productive capacity increases -> increased C + I -> higher standards of living 2. Increased employment opportunities3. Business confidence -> increased investment4. Increased trade competitiveness5. Increased tax and VAT revenue -> higher public spending > further economic growth 6. Lower interest rates7. Reduces poverty8. Expansion of productive capacity which decreases risk of inflation due to overheating 9. Political power

Question 15

What is overheating?

Answer 15

Too much demand for available output

Question 16

Costs of economic growth (4)

Answer 16

1. Imperfect indicator of living standards2. Fails to take into account the externalities such as external environmental costs. -> exaggerated contribution to growth of living standards3. No indication of the distribution of rising income. It may be economic growth for a minority whilst many are still poor. 4. ‘Consumer society’ gives rise to social problems. No taken into account by statistics

Question 17

Problems of measuring economic growth

Answer 17

1. Large volume of data to be recorded- inaccuracy and omissions. 2. Omissions related to non-marketed activities (DIY, household tasks) for which payment is not made.3. Non marketed government services such as free health care need to be valued. Measured by giving values to performance indicators such as number of students in education4. Informal economy activity omissions. Evidence of the informal economy emerges from expenditure data.5. Large illegal market economies

Question 18

What are some sustainable growth strategies?

Answer 18

1. Investment in technology that reduces negative environmental impacts 2. Use of expanded tax revenue to redistribute income to those not benefitting from the growth process.

Question 19

What is sustainable economic growth?

Answer 19

Economic growth achieved in a manner that does not threaten to reduce future economic welfare.