An unexpected surge in economic growth at the end of 2019 was very good news for the Israeli Prime Minister Benjamin Netanyahu who will soon be battling in a national election.
GDP increased by 4.8% in the last quarter of 2019, the fastest quarterly rate in two years according to the Central Bureau of Statistics in Israel.
The surprisingly high growth rate was driven by a 10% increase in private consumption and an 8.7% increase in investment. With both consumption and investment being key determinants of aggregate demand in an economy, and also one of our measures for economic performance, it comes as no surprise that they have had such a positive impact on overall growth levels.
That being said, the large increase in consumption was mainly due to an increase in spending on imported cars. Although consumers would have paid a higher price for cars than the companies who imported them, imports do represent a leakage of income from the economy. This, along with low levels of government spending, explains why the actual increase in GDP was relatively small compared to the figures for consumption and investment.
source: tradingeconomics.com
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term aggregate demand?
Q2. Explain why an increase in consumption and investment lead to an increase in aggregate demand.
Q3. According to the first paragraph, the Prime Minister of Israel is likely to gain more popular support with strong economic growth in the country. Assess the benefits of economic growth to the people of Israel.
BONUS QUESTION
Just after this article was written, economic growth plummeted in Q1 and Q2 of 2020. Explain why.
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