Economic growth Flashcards
Short run economic growth
An increase in aggregate demand brings spare capacity into production
Long run economic growth
when the productivity capacity of the economy is increasing. It’s used to refer to the trend rate of growth of real national output in an economy over time
Determinants of short run growth
- Increase in AD
- Increase in SRAS
Determinants of long run growth
- Increase in productive capacity
- Improvements in supply side economy through the quantity and quality of FoP.
How could we improve the quality and quantity of FoP?
- Increases in the labour force
- Improvement in labour productivity
- Capital investment
- New technology
- Education
- Government policy
Benefits of economic growth
- Rise in living standards
- Lower unemployment
- Reduced poverty
- Government’s fiscal position
How is rise in living standards a benefit of economic growth?
- As GDP rises, individuals should experience improvement in their material standard of living as real GDP per capita rises
- Eg. citizens can now afford a wider range of luxury goods and services
How is lower unemployment a benefit of economic growth?
- As the economy grows the demand for goods and services rises, firms then demand more labour to provide those goods and services.
How is reduced poverty a benefit of economic growth?
- As average income rises this should also be accompanied by a reduction of absolute poverty
How is the government’s fiscal position a benefit of economic growth?
- As more jobs are created, Government finances improve as they have greater tax revenues and less benefits to pay.
- Some increased revenue may be used to pay off debts or be reinvested into the economy
Costs of economic growth
- Negative externalities
- Inequality
- Scarce resources
- Inflation
How is negative externalities seen as a consequence of economic growth?
- Economic growth often involves environmental damage, pollution and congestion which could damage living standards.
How is inequality seen as a consequence of economic growth?
- Unlikely that benefits of economic growth is distributed evenly.
- Could lead to an unequal distribution of income and widen that gap between the rich and the poor.
How is scarce resources seen as a consequence of economic growth?
- Faster growth leads to faster utilisation of non renewable resources such as coal and oil.
- Faster resource depletion leads to less sustainable long run growth
How is inflation seen as a consequence of economic growth?
- As resources become scarce and demand increases due to rising incomes, this creates inflationary pressures
- May reduce real incomes and require government intervention.
