2.5 Flashcards
(36 cards)
1
Q
What needs to happen for economic growth to occur?
A
- Increase in quality or quantity of one of the 4 factors of production. Or CELL being used efficiently.
2
Q
What factors cause economic growth?
A
Land, Labour, Capital, Enterprise,Technological process and Efficiency
3
Q
Explain Land for economic growth?
A
- Discovery of new resources e.g oil will increase economic growth. People say developing countries grow the most from exploiting new resources. Saudi have experienced econ growth from finding oil.
4
Q
Explain Land economic growth?
A
An increase in quality or quantity will improve economic growth.
Size: Changes in workforce can come from immigration, demography. A change in age will effect econ growth. More people working at working age more growth. Also increasing retirement age and free childcare.
5
Q
Explain Quality of the workforce?
A
- Long run improving quality of workforce is important. Can be done through education. Improved education can improve labour quality as workers will be more efficient and have more skills. More people will also be able to contribute to society and improve economic growth.
6
Q
Explain Capital economic growth?
A
- If a country receives investment they will be able to access new technology and improve productivity. It also means new machines can be bought and used. Not all investment can cause an increase in GDP as some can be unsuccessful whilst other doesn’t increase GDP because of it’s nature for example building houses.
7
Q
Explain Enterprise Economic growth?
A
- If governments offer tax benefits and grants they will encourage the development of businesses. Creating more jobs and goods and services. If there is too much wealth distribution the rich will not work as had as they know they will get taxed and the poor won’t work as they will get benefits. Lack of incentive means businesses won’t growth and there will be little investment
8
Q
Explain technological progress economic growth?
A
- Improved technology means average cost of production is lower, because it is quicker to produce and less lanour is needed. Also creates new products for market and helps increase consumption and keeps MPC high.
9
Q
Explain efficiency Economic growth?
A
- Less resources are needed to produce each good so more goods can be produced. One way governments can ensure efficiency is kept up is keep competition up as people are forced to lower prices or increase quality so will have to increase efficiency.
10
Q
Why is there low efficiency in lower income countries?
A
- Lack of protection due to property rights. If government doesn’t intervene then people will be unwilling to save and invest.
- Countries may also experience civil war which lead to negative growth and physical assets are destroyed.
- In communist society there is a lack of efficiency as government is the only supplier and they are not motivated to cut costs. When governments intervene too much this can cause inefficiency.
11
Q
What is the synoptic point?
A
- Decisions by individuals which can effect economic growth. For example investment can lead to growth. Has to be takes by a number of individuals .
12
Q
Explain Actual growth?
A
- Percentage change in GDP. When the economy has produced more goods and services.
13
Q
What is potential growth?
A
Change in Productive potential of the economy overtime.
14
Q
How is the productive potential determined?
A
- Factors of production and so potential growth means resources have been discovered or new technology has developed, this causes economy to grow more.
15
Q
What does the PPF show?
A
- The potential output of the economy. Outward shift of PPF is economic growth. If economy moves inside PPF to on the PPF this is economic recovery rather than growth.
16
Q
Explain international trade?
A
- People say AD can effect economic growth through export led growth. A rise in Ad through increased exports. Effective in countries like Germany,Japan and China.
17
Q
Explain long term trends
A
- The long run trend rate of growth is the average sustainable rate of economic growth over a period of time. It is what happens over a period of time.
18
Q
What is actual growth?
A
- The actual change over time and its changes are what makes up the business cycle
19
Q
What is an Output gap?
A
- The difference between actual level of GDP and estimated value of GDP. Shown on a trade cycle diagram
20
Q
What is a positive output gap and negative?
A
- GDP is higher than estimated whilst negative is when GDP lower than estimated
21
Q
What does a negative output gap mean?
A
- Space in capacity in economy with factories, offices and workers not being utilised.
22
Q
Why is the output gap difficult to measure?
A
- Exact position of LRAS is unknown and estimates of GDP are inaccurate. Some say so hard to measure not a valid concept to use from the purpose of economic policy.
23
Q
What is the trade cycle?
A
- Periodic but up and down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.
24
Q
What are the main things in a business cycle?
A
Boom, downturn, recession and recovery.
25
What are the two type of trade cycles?
- mild trade cycle where GDP does not fall in recession but doesn't grow. And a more extreme one
26
Why do trade cycles exist?
- Because of demand and supply side shocks. E.g political issues, change in exchange rates or a recession in the world.
27
What are the characteristics of a boom?
- When an economy is at a boom national income is at a high and economy is likely to be working above PPF where there is a positive output gap.
- Consumption and Investment tend to be high as tax revenues and wages will be increasing.
- Country also increases imports to meet demand of consumers.
- Inflationary pressure
28
What happens during a downtown?
- Economy moves from a boom to a recession, output and income fall which leads to a fall in consumption and investment.
- Payments for benifits rise and unemployment rises. People also accept jobs for lower wages
- Causes inflationary pressure which causes a fall in unemployment
29
What are the characteristics of a recession?
- When economy is at the bottom of it's cycle it is in a slump and depression.
- This causes high unemployment causing low consumption, investment and imports.
- Inflationary pressure will be low and also deflation.
30
What happens when an economy moves put of a recession?
- Moves to a recovery/expansion phase as national income and output begin to increase with unemployment falling and consumption, investment and imports increasing. Workers may also demand higher wages.
31
What is a Hysteresis?
Hysteresis is when an economy does not fully recover after a recession. This happens because:
- Some workers take early retirement or lose skills.
- Some people stop looking for jobs (discouraged workers).
- Businesses may not invest enough to regain lost physical capital.
32
what is an economic growth policy?
What governments aim to achieve and therefore benefits, consumers,firms and the government.
33
What impact does economic growth have on consumer?
- Increase in demand for housing as people have more money to buy more properties.
- Shares will increase and cause positive wealth effect.
- Better tech can lead to lower prices but better quality
- Can lead to increased inequalities and could lead to inflation and neg effect for consumer.
34
Effect economic growth has on firms?
- Investment will increase as businesses are more successful. Have more money to invest in and more incentive to invest more.
- Business confidence will increase as there is more demand for business products.
- Econ growth will cause more development and research to invent more tech which will increase productivity and lead to lower costs.
- More opportunities for firms to establish themselves causing more profit.
35
Impact on government from economic growth?
- Tax revenues will increase as more goods and services are being produced and bought.
- Means government has more money to put in public services which helps living standards.
- Helps reduce budget deficit
- May mean people expect more from government
36
Impact economic growth has on current and future living standards?
- EG will cause lower poverty levels and an increase in production will cause more jobs so there will be less unemployment and people on benefits.
- More goods and services for people to enjoy so poor can get what they want
- Housing and quality of food increase, Also health increases as people have a better quality of life.
- Could decrease future living standards due to exploitation of environment.
- Argues that the rich can buy more cleaner resources which can be used for research and development.
