Causes of Economic Growth Flashcards
What is economic growth
Sustained rate in a country’s productive potential and real national output
What are the main drivers of long run economic growth
Higher productivity
Gains from innovation
Rising real incomes for households
What is short run economic growth
An increase in real GDP - an increase in actual output
Effect of Economic Growth on PPF
A rise in a country’s productive capacity causes the PPF to shift outwards
Allowed increased supply of consumer and capital goods
What policies can bring about an outward shift in a country’s PPF
Supply Side Policies
Factors which could cause Economic Growth (in the short run)
Changes in interest rate
Changes in Fiscal Policy
Commodity Prices
Currency Changes
Trading Conditions in other Countries
Animal Spirits
Factors which could cause Economic Growth (in the long run)
Investment
Productivity
Labour Supply
R+D
Innovation
Enterprise
What is Export-Led Growth
A significant part of the expansion of real GDP, jobs and per capita incomes flows from successful exporting of goods and services from one country to another
Advantages of Export-Led Growth
Injection into the circular flow of income - rise in AD - Expansion of Output
Growing Export Sales - Increased Revenue and Profit for Businesses - Increase in capital spending through the accelerator effect
Helps industries facilitating trade - increased employment and investment
Disadvantages of Export-Led Growth
Overdependence on trade partner countries - vulnerable to shocks
Running Big Trade Surpluses
May not be enough goods due to needing to export goods - consequent dip in living standards
Demand Pull Inflation and Higher Interest Rates
May be unsustainable
