Unit 4 - Chapter 18 - Economic growth

Question 1

Define economic growth

Answer 1

Economic growth in the short run an increase in a country’s output and in the long run an increase in a country’s productive potential.

It can be measured by an increase in real GDP

Question 2

how to explain higher growth leads to higher living standard

Answer 2

• With higher growth, national output is higher. National income is also higher. Household can afford more goods and services.
• Furthermore, they can afford better healthcare and higher education, improving their human capital and increases their income further.
• There is also a trickle down effect as the poorer households can benefit from more job opportunities.
• The government can also collect more tax revenue, so that it can spend more on welfare benefits and infrastructure, further encouraging growth and reducing inequality.

Question 3

define recession

Answer 3

A decline in real GDP over two consecutive quarters (six months) or more is called a recession. A country’s output may decline as a result of a decrease in aggregate demand or a decrease in aggregate supply.

Question 4

Real GDP增长率 – 人口增长率 等于什么

Answer 4

real GDP per capita增长率

Question 5

Nominal GDP增长率 – 物价增长率(inflation rate) 等于什么

Answer 5

real GDP增长率

Question 6

nominal GDP growth at 10%. Population grows at 5%. Inflation rate is 8%. Has real GDP per capita increased?

Answer 6

Real GDP per capital = (Nominal / price) / population

therefore growth of real per capital = 10 - 8 - 5 = -3%

real GDP per capita therefore reduces

Question 7

what is GDP at current price

Answer 7

nominal GDP

Question 8

what is GDP at constant price

Answer 8

constant price 永远用同一个价格
因此是real GDP

Question 9

identify the two types of growth

Answer 9

1. actual growth. Resulted from higher AD (Better utilisation of resources)
2. potential growth. Resulted from higher LRAS (fop quantity increases or fop quality improves)

Question 10

analyse actual economic growth

Answer 10

If there is spare capacity, output can increase as a result of an increase in aggregate demand. For instance, greater consumer confidence may lead to higher consumer expenditure and so an increase in aggregate demand. Similarly, an increase in government spending and a cut in taxes and the rate of interest may result in more factors of production being employed and output rising.

• It can be shown as an economy moving towards the PPC as below: The economy is initially producing at point X. Then the production point increases to point Y and more goods and services are produced.
• Alternatively, it can be shown as an economy’s AD shifting to the right towards the LRAS level as below: The increase in aggregate demand brings into use previously unemployed resources, and output (measured by real GDP) increases from Y to Y1