Explain what is meant by infrastructure and consider the view that an increase in investment in infrastructure will promote an increase in both actual and potential economic growth.

Explain what is meant by infrastructure and consider the view that an increase in investment in infrastructure will promote an increase in both actual and potential economic growth.

A clear explanation of what is meant by infrastructure should be provided along with supporting examples. Infrastructure provides the basic facilities which enable businesses to provide goods and services efficiently.
Examples might include improved road/rail links; health/education facilities; power generation. Economic growth is attained by an increase in real GDP within a specific time period. A clear distinction should be made between actual growth and potential growth, ideally supported by relevant production possibility diagrams.

An attempt should then be made to illustrate why an increase in investment in infrastructure will initially lead to an increase in aggregate demand which might lead to an increase in the actual growth rate. Also, the relationship between an increase in investment and infrastructure and potential economic growth should be analysed.
A conclusion should be provided that recognises that both actual and potential economic growth are likely to be affected but one will be a short run effect and its extent will depend upon the existing state of the economy while potential growth will be attained in the long run and will depend upon the nature and extent of the level of investment.

L4 (9-12 marks): For demonstrating a clear understanding of the meaning of infrastructure and making the clear distinction between actual and potential economic growth. Economic analysis of the impact of this type of investment on both types of growth will be provided. Evaluative comment will also be provided which distinguishes between the short run and long run impact and which also recognises the impact will depend upon the existing state of the economy. A conclusion will consider the validity of the view in question.
L3 (7-8 marks): For an attempt to analyse the impact of this type of investment on both actual and potential growth but which does not provide any evaluative comment and which does not provide a conclusion.

L2 (5-6 marks): For a competent comment which explains what is meant by infrastructure and which also distinguishes between actual and potential growth. However, the distinction will be based on description rather than analysis. No attempt will be made to consider the specific view.

L1 (1-4 marks): For an answer that has some basic correct facts but includes irrelevancies and errors of theory.