Macro 2.5

Question 1

What is required for economic growth to occur?

Answer 1

An increase in quality or quantity of one of the four factors of production: land, labour, capital, or enterprise, or these being used more efficiently.

Question 2

What effect does an increase in LRAS have on an economy?

Answer 2

It will increase the potential level of output in an economy.

Question 3

What is the role of land in economic growth?

Answer 3

The discovery of new resources, e.g., oil, will increase economic growth.

Question 4

How do developing countries typically grow economically?

Answer 4

By exploiting new resources.

Question 5

Why did Saudi Arabia experience large growth rates?

Answer 5

Almost purely because of their discovery of oil.

Question 6

What impact does an increase in the quality or quantity of labour have?

Answer 6

It will improve economic growth.

Question 7

What factors can change the size of the workforce?

Answer 7

Immigration, demography (age profile), or participation rates.

Question 8

How does raising the retirement age affect economic growth?

Answer 8

It increases the population of working age.

Question 9

What government action can encourage mothers to return to work?

Answer 9

Providing free childcare.

Question 10

What is the importance of immigration for economic growth?

Answer 10

It can provide potential workers with the skills, knowledge, and desire to work.

Question 11

What is more important for long-term economic growth: quality or quantity of labour?

Answer 11

Improving the quality of labour.

Question 12

How does improved education affect the workforce?

Answer 12

It improves labour quality, making workers more efficient and increasing output per worker.

Question 13

What is the consequence of having more skilled workers in an economy?

Answer 13

They are less likely to suffer from structural unemployment and can contribute to innovation.

Question 14

How does sustained investment in capital affect a country?

Answer 14

It enables access to or development of new technology, improving productivity.

Question 15

What is the effect of tax benefits and grants on enterprise?

Answer 15

They encourage the development of business, creating jobs and increasing economic growth.

Question 16

What happens when there is too much wealth distribution?

Answer 16

There will be little incentive to work hard.

Question 17

How does technological progress contribute to economic growth?

Answer 17

It lowers the average cost of production and creates new products for the market.

Question 18

What is efficiency in the context of economic growth?

Answer 18

It means less resources are needed to produce each good, allowing for more goods to be produced.

Question 19

What is actual growth?

Answer 19

The percentage change in GDP, indicating that the economy has produced more goods and services.

Question 20

What is potential growth?

Answer 20

The change in productive potential of the economy over time.

Question 21

What does an outward shift of the PPF indicate?

Answer 21

Economic growth.

Question 22

What is an output gap?

Answer 22

The difference between the actual level of GDP and the estimated long-term value for GDP.

Question 23

What characterizes a positive output gap?

Answer 23

When GDP is higher than estimated.

Question 24

What characterizes a negative output gap?

Answer 24

When GDP is lower than estimated, indicating spare capacity in the economy.

Question 25

Why is measuring output gaps difficult?

Answer 25

The exact position of the LRAS is unknown and initial estimates of real GDP are often inaccurate.

Question 26

How can output gaps be illustrated?

Answer 26

Using AS and AD diagrams.

Question 27

What is the long run trend rate of growth?

Answer 27

The average sustainable rate of economic growth over a period of time.

Question 28

What is the relationship between actual growth and the business cycle?

Answer 28

Actual growth is the change in real GDP over time, which makes up the business cycle.

Question 29

What does LRAS represent in economic output?

Answer 29

LRAS shows the full capacity output where all resources are being fully utilised.

Question 30

What is indicated by an equilibrium to the right of the LRAS?

Answer 30

The economy working over capacity in the short term.

Question 31

What does it mean when the equilibrium is to the left of the LRAS?

Answer 31

The economy is working under capacity.

Question 32

At AD1, what type of output gap exists?

Answer 32

A negative output gap.

Question 33

At AD2, what type of output gap exists?

Answer 33

A positive output gap.

Question 34

According to classical economists, how can a positive output gap be filled?

Answer 34

Through long-run economic growth, a recession, or a rise in production costs.

Question 35

What defines a business cycle?

Answer 35

Periodic but irregular up and down movements in economic activity, measured by fluctuations in real GDP.

Question 36

List the four main phases of a business cycle.

Answer 36

* Boom * Downturn * Recession (slump) * Recovery

Question 37

What characterizes a boom phase in the trade cycle?

Answer 37

High national income, high consumption and investment, and inflationary pressure.

Question 38

What happens during a downturn in the economy?

Answer 38

Output and income fall, leading to decreased consumption and investment.

Question 39

Define a recession.

Answer 39

A period where the economy is at the bottom of the cycle, characterized by high unemployment and low consumption.

Question 40

How does the UK government define a recession?

Answer 40

Where real GDP falls in at least two successive quarters.

Question 41

What are the characteristics of a recession?

Answer 41

High unemployment, low consumption, investment, and imports; low inflationary pressure.

Question 42

What occurs as the economy moves into a recovery phase?

Answer 42

National income and output begin to increase, with falling unemployment.

Question 43

What is economic growth considered a policy goal for governments?

Answer 43

It aims to benefit consumers, firms, the government, and living standards.

Question 44

How does economic growth affect consumers' demand for housing?

Answer 44

Increases demand as people have more money to afford properties.

Question 45

What is the positive wealth effect?

Answer 45

Increased value of shares and housing leading to greater consumer wealth.

Question 46

What impact does economic growth have on firms?

Answer 46

Increased investment opportunities and improved business confidence.

Question 47

What is the relationship between economic growth and tax revenues?

Answer 47

Tax revenues rise as more goods and services are bought.

Question 48

What effect does economic growth have on living standards?

Answer 48

It can lower poverty levels and increase access to goods and services.

Question 49

Fill in the blank: Economic growth can lead to increased __________ inequalities.

Answer 49

[economic]

Question 50

What are potential environmental costs of economic growth?

Answer 50

* Depletion of non-renewable resources * Increased pollution and waste * Concerns about sustainability

Question 51

True or False: Economic growth guarantees improved living standards for all.

Answer 51

False