Question

Question 3: Long Theory Questions [7 + 6 + 7 = 20 marks]

1. What is economic growth and with the help of appropriate examples, how to achieve economic growth?

2. Critically explain why governments use the expansionary fiscal policy.

3. With the help of appropriate diagrams, explain the expansionary monetary policy and its consequences.

(TYPING)

Answer 1

1) Economic growth is an increase in the amount of goods and services produced per head of the population over a period of time.

To increase economic growth, we can apply the following:

• Lower interest rates – reduce the cost of borrowing and increase consumer spending and investment.
• Increased real wages – if nominal wages grow above inflation then consumers have more disposable to spend.
• Higher global growth – leading to increased export spending.
• Devaluation
• Rising wealth