Causes of growth [2.5.1] Flashcards
(15 cards)
What is Economic growth?
Economic growth is a long term expansion of productive potential of the economy.
As the country’s GDP is increasing, it is more productive more employment. Increases the wealth of the country and its population.
High Economic Growth leads to extra tax for the government which can use to develop the economy.
What are the factors that influence economic growth?
GDP
Demand - interest, consumer confidence, asset prices, real wages, exchange rate, banking sector
Government spending
Supply - Infrastructure.
What are the 2 main ways to measure economic growth?
Actual growth GDP - The % annual increase in a country’s real GDP over a period of time, the annual % increase in national output caused by a rise in AD.
Potential growth - The long run expansion of an economy’s productive potential, the increase in the capacity of an economy to produce caused by a rise in AS. Potential output is that which could be produced if there was full employment of resources.
Why is economic growth a important measure?
Economic growth is about an increase in production within the economy.
It is important because living standards are influenced by access to goods and services.
Without growth individuals can only enjoy living standards at expense of other with growth we are better off.
Why is economic growth important for businesses?
Increased profits
A rise in average living standards
Creation of new jobs
Lower unemployment
increased tax revenues
Improved business confidence
Increased capital investment
What is meant by Economic growth in terms of GDP?
Economic growth is an increase in real GDP it means an increase in the value of goods and services produced in an economy.
The rate of economic growth is the annual % increase in real GDP.
How does interest rates affect AD and economic growth?
Interest rates: Lower interest rates would make borrowing cheaper encouraging firms to invest and consumers to spend. People with mortgages benefit through lower repayments. Influenced by confidence however.
How does consumer confidence affect AD and economic growth?
Consumer confidence: Consumer and business confidence is important for determining economic growth. If consumer are confident about the future will be encouraged to borrow and spend. pessimistic save and reduce spending.
How does Asset prices affect AD and economic growth?
Rising house prices creates a positive wealth effect. People can re-mortgage against the rising value of their home encourages more consumer spending. House price important.
How does Real wages affect AD and economic growth?
UK experienced a situation of falling real wages. inflation been higher than nominal wages declining real income. Consumers cut spending. Reducing purchases of luxury spending.
How does Value of the exchange rate affect AD and economic growth?
If pound is devalued, export become more competitive imports more expensive. Increase demand for domestic goods and services. Depreciation could cause inflation provide a boost to growth.
How does the banking sector affect AD and economic growth?
2008 credit crunch showed the influence of the banking sector can be in determining investment and growth. If banks lose money and no longer want to lend make difficult for firms and consumers declining investment
What are the factors that determine long run economic growth?
Levels of infrastructure: Investments in roads and transports can help firms reduce costs and expand production. Without necessary infrastructure difficult for firms to be competitive in international market.
Human capital: This is the productivity of workers. Determined by the level of education, training and motivation. Increased labour productivity help firms to improve production processes can become more efficient.
Development of tech: In long run development of new tech is a key factor in enabling improved productivity and higher economic growth.
Strength of the labour market: If labour markets are flexible, firms find it easier to hire workers they need expansion easy. Regulated markets make this difficult.
What role does productivity have on Economic Growth?
Productivity is output per worker has strong bearing on the long run trend rate of economic growth. Productivity determined by technology, levels of investment in new tech and skills of the labour force productivity has fallen in UK.
What is the current UK’s economic position
UK experiencing slow growth slight GDP increase in last quarter major trade deficit relatively high level of public debt country has low growth and unemployment remains low.
