2.5 Economic Growth

Question 1

Graphs for Short run economic growth

Answer 1

AD/AS Diagram
-AD shifting right

PPF
outwards shift

Question 2

Long Run economic growth graph

Answer 2

LRAS/AD diagram
-outwards shift in LRAS

Question 3

Positive Output Gap

Answer 3

when real GDP is higher than potential real GDP

Question 4

Negative Output Gap

Answer 4

When Potential Real GDP is greater than actual GDP

Question 5

Characteristics of a Recession

Answer 5

Two consecutive quarters of negative economic growth
Increased unemployment
Increased negative output gap
Low confidence

Question 6

Characteristics of a Boom

Answer 6

Increased economic growth
Decreasing unemployment
Decreasing negative output gap or increasing positive output gap
High confidence

Question 7

Who benefits from a recession

Answer 7

Firms like Poundland who offer inferior goods as they have less disposable income

Question 8

Benefits of Economic Growth

Answer 8

Increased income-> increased living standards
Less poverty as employment increases
High sales for firms-> greater profits
Increased investment by firms-. increased potential output of economy
Less Govt spending on benefits

Question 9

Costs of Economic growth

Answer 9

AD can cause demand pull inflation-> less spending by people with fixed incomes
Environmental issues from negative externalities of production
Increased inflation-> less export sales->less investment by firms