2.5 economic growth

Question 1

What are the causes of economic growth?

Answer 1

• There must be an increase in the quality or quantity in one of the factors of production or them being used more efficiently
• any factor that will increase the LRAS will also increase economic growth because increase in LRAS will increase the potential level of output in an economy

Question 2

How can an increase in land/natural resources lead to economic growth?

Answer 2

• the discovery of new resources e.g oil will increase economic growth -> this is most prevalent in developing countries, especially the in the Middle East where the depend on exploiting their natural resources

Question 3

How can a change in labour affect economic growth?

Answer 3

• there may be changes in the size of the workforce from immigration, change in demographic or participation rates -> the more people working or of working age, the higher the growth will be. —— this can be done with policies such as raising the retirement age, providing free childcare and making immigration rules less stringent
• there can be improvements to the quality of the workforce —— can be done through the provision of education, training etc.

Question 4

How can the provision of education improve the quality of the workforce?

Answer 4

• improved education = workers have all the skills they need and are more efficient, so output per worker increases
• more skilled workers are less likely to suffer from structural unemployment because their skills allow them to have greater occupational mobility so the output of the economy stays stable because there are fewer unused resources
• they will also be able to contribute to change in the form of new tach, innovation and business which will help to improve economic growth

Question 5

How can an increase in capital contribute to economic growth?

Answer 5

• if a country has a sustained investment, they will be able to access and develop new tech which will allow the country to enhance productivity
• it also means that more machinery can be bought and used - even if there is no technological advancement, so that more goods can be produced
• but this may not always be the case because not all investments may be successful

Question 6

How does enterprise contribute to economic growth?

Answer 6

• with the offer of tax benefits and grants, govt can encourage the development of business, creating jobs and more goods and services
• too much wealth distribution will lead to a lack of incentive to work (because the rich will know that their money will be taken in the form of tax and the poor know that they will be given benefits) - a lack of incentive to work = businesses wont invest = will be little to no economic growth

Question 7

How can technological progress contribute to economic growth?

Answer 7

-improved tech = a lower average cost of production - either because it is quicker to produce or less labour equipment is needed to produce, so more goods overall can be produced
- also allows new products to enter the market and keeps MPC high - without increased spending, economic growth would be low

Question 8

How can an i