Economic Growth Flashcards
What is economic growth?
It is the increase in real output as measured in the change in real GDP from one time period to another.
What are the kinds of economic growth?
- Actual growth
- Potential growth
- Sustainable growth
- Inclusive growth
- Sustained growth
What is actual growth?
Actual growth is the percentage annual increase in national output over a period of time. It arises from:
- An increased utilisation of present capacity
There is a rightward shift in the AD curve.
What is potential growth?
Potential growth is the increase in the economy’s potential output i.e. increase in capacity of the economy to produce more goods.
It is shown by an outward shift of the PPC.
It arises from:
- Growth in quantity and quality of the economy’s available resources
- Improvement in the state of technology
It is represented by a rightward shift of the AS curve.
What is sustainable growth?
It is the rate of growth that can be maintained without creating other significant economic problems (such as environmental and depleted resources).
Economic growth may be unsustainable due to weak environmental protection, uncontrolled motor growth etc as part of a country’s industrialisation strategies.
What is inclusive growth?
It is the rate of growth that is sustained over a period of time. It leads to the reductions of income inequality.
What is sustained growth?
It is the compromise of both actual and potential growth.
What are the cases of undesirable economic growth?
- High and rapid rise in rates of growth
- Slow and low growth
- Negative growth
What are the cases of undesirable growth on the demand side?
- Fall in AD
2.Rapid rise in AD
How does fall in AD worsen economic growth?
A fall in AD could happen due to various reasons such as global recession (X - M), domestic recession (C and I). Via the reverse multiplier effect, the national income falls by multiple times and economic growth worsens.
How does a rapid rise in AD worsen economic growth?
Rapidly rising AD due to rising consumption expenditure, investment expenditure and net export earning can result in high levels of economic growth.
When AD rises rapidly in constraint to AS, this leads to resources getting scarce as utilisation and competition for resources intensify. Thus, there will be inflation.
What are the cases of undesirable growth on the supply side?
Insufficient resources to sustain growth, such as capital and skilled labour
How does insufficient resources to sustain growth, such as capital and skilled labour, worsen economic growth?
- Capital
- It is seen as a major factor affecting economic growth
- The larger the capital stocks, the higher the possible level of productivity and real income - Labour
- The quantity and quality of labour have a huge part in determining whether economic growth can be sustained
- The higher the size of the labour force, the higher the country’s productive capacity and the ability to achieve at a higher level of real output in the long run
- Quality of labour force affects sustainability of economic growth
- A more educated and trained workforce will raise productivity, which allows for greater economic growth
What are the consequences of undesirable rates of economic growth?
- Purchasing power and consumption
- Employment and SOL
- Slow and low growth / negative growth
- Cost of living
