Macroeconomics 2.1 Economic Growth

Question 1

What is economic growth?

Answer 1

Economic growth is an increase in the productive capacity or potential of the economy.

Question 2

What is the policy objective of economic growth?

Answer 2

The policy objective of economic growth is to enhance the economic output and standard of living.

Question 3

What are the different stages of the economic cycle?

Answer 3

The different stages are boom, downturn, recession, and recovery.

Question 4

What are real and nominal Gross Domestic Product (GDP)?

Answer 4

Real GDP is adjusted for inflation, while nominal GDP is measured at current market prices.

Question 5

How do you calculate economic growth rates?

Answer 5

Economic growth rates can be calculated using the formula: ((GDP in current year - GDP in previous year) / GDP in previous year) * 100.

Question 6

What is GDP per capita?

Answer 6

GDP per capita is the measure of average living standards in a country, calculated by dividing real GDP by the population.

Question 7

What does SRAS stand for?

Answer 7

SRAS stands for Short-Run Aggregate Supply.

Question 8

What does LRAS stand for?

Answer 8

LRAS stands for Long-Run Aggregate Supply.

Question 9

What is the formula for Aggregate Demand (AD)?

Answer 9

AD = C + I + G + (X - M) where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

Question 10

What are the three withdrawals from the circular flow?

Answer 10

• Savings
• Taxes
• Imports

Question 11

What are the three injections into the circular flow?

Answer 11

• Investment
• Government spending
• Exports

Question 12

What are two factors that affect consumption decisions?

Answer 12

• Disposable income
• Consumer confidence

Question 13

What are two factors that affect investment decisions of firms?

Answer 13

• Interest rates
• Business expectations

Question 14

What shifts SRAS?

Answer 14

Factors such as changes in production costs, supply shocks, and changes in the price of inputs.

Question 15

What shifts LRAS?

Answer 15

Factors such as technological advancements, increases in resources, and improvements in productivity.

Question 16

What is the multiplier?

Answer 16

The multiplier is a factor that quantifies the change in economic output resulting from an initial change in spending.

Question 17

What is the accelerator?

Answer 17

The accelerator is an economic concept that describes how investment levels change in response to changes in demand.

Question 18

Write one formula for calculating the multiplier.

Answer 18

Multiplier = 1 / (1 - MPC) where MPC is the marginal propensity to consume.

Question 19

What is replacement investment?

Answer 19

Replacement investment refers to spending to replace worn-out or obsolete capital.

Question 20

What is short-term economic growth?

Answer 20

Short-term economic growth is an increase in the output of goods and services in the economy over a short period.

Question 21

Name three policies that could be used to stimulate AD.

Answer 21

• Increased government spending
• Tax cuts
• Lower interest rates

Question 22

What is the trend rate of economic growth?

Answer 22

The trend rate of economic growth is the long-term average rate of growth an economy can sustain.

Question 23

What are the costs and benefits of economic growth?

Answer 23

Benefits include increased employment and higher incomes; costs may include environmental degradation and income inequality.

Question 24

What does net investment mean?

Answer 24

Net investment refers to the total amount of investment in an economy minus depreciation.

Question 25

What is the relationship between GDP and recession?

Answer 25

A recession is typically defined as two consecutive quarters of negative GDP growth.

Question 26

What is the impact of inflation on economic growth?

Answer 26

Inflation can erode purchasing power but may also stimulate spending if consumers expect prices to rise.

Question 27

True or False: Economic growth is always beneficial.

Answer 27

False. Economic growth can bring about negative consequences such as environmental issues and increased inequality.

Question 28

What is the impact of government intervention on short-term economic growth?

Answer 28

Government intervention can stimulate short-term growth but may lead to inflationary pressures.

Question 29

What is a benefit of economic growth related to disposable income?

Answer 29

Increased disposable incomes ## Footnote Higher disposable income allows consumers to spend more, improving overall economic health.

Question 30

What impact does economic growth have on employment?

Answer 30

Increased employment ## Footnote Economic growth often leads to the creation of new jobs as businesses expand.

Question 31

How does economic growth affect government finances?

Answer 31

Improved government finances ## Footnote Economic growth increases tax revenues, which can help reduce budget deficits.

Question 32

What is the relationship between economic growth and inequality according to the Kuznets Curve?

Answer 32

Initial increase in inequality, followed by a decrease as growth continues ## Footnote The Kuznets Curve suggests that as an economy grows, income inequality may initially rise before it falls.

Question 33

What is the Environmental Kuznets Curve?

Answer 33

Shows the relationship between GDP per capita and environmental degradation ## Footnote It suggests that pollution may increase with economic growth initially but decrease after reaching a certain income level.

Question 34

True or False: Economic growth always leads to reduced inequality.

Answer 34

False ## Footnote Economic growth can initially widen the inequality gap before potentially reducing it.

Question 35

Fill in the blank: Economic growth can lead to increased _______ from the consumption of different goods and services.

Answer 35

utility ## Footnote Increased utility indicates greater satisfaction and value derived from goods and services.

Question 36

What are two environmental costs of economic growth?

Answer 36

* Faster depletion of natural resources * Increased negative externalities such as pollution ## Footnote These costs highlight the trade-offs involved in pursuing economic growth.

Question 37

What does the Lorenz Curve illustrate?

Answer 37

Income and wealth distribution in an economy ## Footnote It visually represents how income is distributed among the population.

Question 38

What is one potential problem with the Kuznets Curve model?

Answer 38

It may not accurately reflect the impact of growth on all income groups ## Footnote Different regions and contexts can lead to varying experiences of inequality.

Question 39

What can increased economic growth lead to in terms of healthcare?

Answer 39

Increased spending on healthcare ## Footnote More resources become available for public health initiatives and services.

Question 40

What is the accelerator effect in relation to economic growth?

Answer 40

Higher investment leading to increased productivity ## Footnote This effect can result in more efficient production processes and innovation.

Question 41

What is a key evaluation point regarding the benefits of economic growth?

Answer 41

However, it can exacerbate inequality ## Footnote This point highlights the complexity of economic growth's impact on society.

Question 42

What are two sources of increased taxation receipts from economic growth?

Answer 42

* More Income Tax revenue * More corporation tax revenue due to increases in firms’ profits ## Footnote Increased profits and wages expand the tax base, leading to higher government revenues.

Question 43

How does economic growth contribute to technological advancements?

Answer 43

Higher rates of investment leading to technological improvements ## Footnote Investment in new technologies can enhance production efficiency and innovation.

Question 44

What is a potential outcome for population happiness as a result of economic growth?

Answer 44

Potentially a happier population with higher social welfare ## Footnote Economic growth can improve living standards and overall well-being.

Question 45

What role does government intervention play in addressing negative externalities?

Answer 45

It aims to correct market failures and achieve social optimum levels of output ## Footnote Government policies can help mitigate the adverse effects of economic growth on the environment.