Section A: Key terms and recall
Define economic growth. [2 marks]
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Economic growth is the increase in the production of goods and services in an economy over a period of time. It can be measured as the increase in real GDP (Gross Domestic Product) over time. [2 marks]
Name two ways to measure economic growth. [2 marks]
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Two ways to measure economic growth are: 1. Increase in real GDP (Gross Domestic Product) 2. Increase in GDP per capita (GDP per head of population) [2 marks]
Give one cause of economic growth. [1 mark]
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One cause of economic growth is investment in capital goods, such as machinery and technology, which increases productivity. [1 mark]
Give one consequence of economic growth. [1 mark]
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One consequence of economic growth is an increase in living standards, as people have more goods and services available to them. [1 mark]
Give one cause of recession. [1 mark]
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One cause of recession is a decrease in aggregate demand, which can be due to factors such as a decrease in consumer spending or a decrease in exports. [1 mark]
Give one consequence of recession. [1 mark]
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One consequence of recession is an increase in unemployment, as businesses may lay off workers due to decreased demand for goods and services. [1 mark]
Section B: Applying your knowledge
A country's real GDP was £500 billion in 2020 and £550 billion in 2021. Calculate the economic growth rate for this country. Show your working. [2 marks]
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Economic growth rate = ((GDP in 2021 - GDP in 2020) / GDP in 2020) x 100 = ((550 - 500) / 500) x 100 = (50 / 500) x 100 = 10% [2 marks]
A country has a population of 10 million and a GDP of £200 billion. Calculate the GDP per capita. Show your working. [2 marks]
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GDP per capita = GDP / Population = 200,000,000,000 / 10,000,000 = £20,000 [2 marks]
A country has experienced a recession due to a decrease in exports. Suggest one policy the government could use to try to stimulate economic growth. [2 marks]
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One policy the government could use is to devalue the currency, which would make exports cheaper and more attractive to foreign buyers, potentially increasing demand and stimulating economic growth. [2 marks]
A country has a high level of unemployment. Suggest one policy the government could use to try to stimulate economic growth and reduce unemployment. [2 marks]
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One policy the government could use is to increase government spending on infrastructure projects, such as building roads and schools. This would create jobs and stimulate economic growth. [2 marks]
A country has a low level of investment in research and development (R&D). Suggest one policy the government could use to try to stimulate economic growth. [2 marks]
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One policy the government could use is to offer tax incentives to businesses that invest in R&D, encouraging them to innovate and increase productivity, which would stimulate economic growth. [2 marks]
Section C: Explain and analyse
Explain two causes of economic growth. [4 marks]
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Two causes of economic growth are: 1. Investment in capital goods: When businesses invest in new machinery, technology, and infrastructure, it increases their productivity and output, leading to economic growth. [2 marks] 2. Increase in the labour force: When more people are employed or when the working-age population increases, it leads to an increase in output and economic growth. [2 marks]
Explain two consequences of recession. [4 marks]
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Two consequences of recession are: 1. Increase in unemployment: During a recession, businesses may lay off workers due to decreased demand for goods and services, leading to an increase in unemployment. [2 marks] 2. Decrease in government revenue: During a recession, there is often a decrease in tax revenue due to lower economic activity, which can lead to a budget deficit and increased government debt. [2 marks]
Evaluate two policies that the government could use to promote economic growth. [6 marks]
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Two policies that the government could use to promote economic growth are: 1. Increase in government spending: This policy can stimulate economic growth by creating jobs and increasing aggregate demand. However, it can also lead to a budget deficit and increased government debt. [3 marks] 2. Tax cuts: This policy can stimulate economic growth by increasing disposable income and encouraging businesses to invest. However, it can also lead to a decrease in government revenue and a budget deficit. [3 marks] In evaluating these policies, it is important to consider the potential benefits and costs, as well as the current economic situation. For example, in a recession, an increase in government spending may be more effective in stimulating economic growth than tax cuts. However, in a period of high inflation, tax cuts may be more appropriate. [0 marks]
Section D: Challenge
A country has a GDP of £300 billion and a population of 15 million. The government wants to achieve an economic growth rate of 5% per year. What would the GDP need to be in five years' time to achieve this growth rate? Show your working. [4 marks]
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To achieve an economic growth rate of 5% per year, the GDP would need to grow by a factor of (1 + 0.05)^5 over five years. GDP in 5 years = GDP now x (1 + growth rate)^number of years = 300,000,000,000 x (1 + 0.05)^5 = 300,000,000,000 x 1.27628 = £382,884,000,000 [4 marks]