Cambridge International as and a level Economics Ebook

Increase in the quality of resources
Improvements in the quality of resources will increase 
the productivity of the factor inputs. Th
e quality of labour 
and entrepreneurship can be improved through education 
and training and better health care. Th
e quality of capital 
goods is improved as technology advances. Th
e application 
of fertilisers and irrigation and drainage schemes may 
improve the quality of land.
Economic growth in some developing 
countries
Th
e main obstacle to increases in the quantity and 
quality of resources in some developing countries is 
the opportunity cost of devoting resources away from 
their current use. For example, devoting more resources 
to education may mean that fewer resources can be 
devoted, for instance, to health care. Producing more 
capital goods may mean sacrifi cing consumer goods in 
the short run, which would lead to a decrease in living 
standards. Research and development that can result 
in advances in technology also use resources that have 
alternative uses.
Some emerging economies have, nevertheless, 
achieved high economic growth rates in recent years. 
China has witnessed particularly rapid economic 
growth. Indeed, aft er two decades of rapid economic 
growth China has become the second largest economy 
in the world and it is predicted it will soon overtake 
the USA for the top spot. China’s increase in output 
has been driven by increases in investment and 
exports. Th
e high rates of saving in China have freed 
up some resources for investment and the relatively 
low value of the Chinese currency, the renminbi, has 
contributed to the rise in demand for Chinese exports. 
India’s economic growth rate has been boosted by an 
increase in the size of the labour force and advances in 
information technology.
0
Real GDP
Upturn
c
d
b
a
Time
Recession
Downturn
Actual output
Trend growth in
potential output
Boom
Figure 9.6 
The trade cycle
TOP TIP
In analysing changes in economic activity, it is oft en 
useful to mention output gaps.