Economic growth

Question 1

What is economic growth?

Answer 1

An increase in the productive potential of an economy

Question 2

What are the four main objectives of macroeconomic government policy?

Answer 2

Low inflation - in the UK - 2%

Strong economic growth

Reducing unemployment

Equilibrium in balanced payments

Question 3

What is a demand side shock and an example?

Answer 3

Shocks to aggregate demand - they can increase or decrease AD

• countries major trading partner has a recession - significantly reduce demand for exports.

Question 4

What is a supply side shock and an example?

Answer 4

Shocks to aggregate supply - they can either increase/decrease AS.

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Question 5

How can you create short run economic growth?

Answer 5

Demand side factors - lowering interest rates would increase consumer spending

Raising welfare benefits would increase consumer and government spending.

Question 6

How can you create long run economic growth?

Answer 6

Raising quantity/quality of the factors of production

Creating stability in the country (enforcing laws)

Population increase

Question 7

Benefits of economic growth?

Answer 7

Higher wages for employees - rise of living standard

Greater profits for firms

Wages and employment rise - so governments tax revenue will increase and unemployment benefits will reduce

Question 8

Costs of economic growth?

Answer 8

Higher wages - more responsibility - more stress less productivity.

Industrial expansion - negative externalities eg pollution

Balance of payments deficit