Economic Growth Flashcards
What is economic growth
A long term expansion of productive potential
What is short term growth
The annual % change in RNO
What is long term growth
Shown by an increase in trend or potential GDP
How is short term economic growth shown
Cyclical changes in real GDP Changes in AD Changes in short run AS Short term external shocks to D and S Short term policy changes
How is long run economic growth shown
Potential output / trend growth Productivity of labour and capital Technological progress Changes in the labour force Investment rates
Key factors affecting short run economic growth
Interest rates Fiscal policy Commodity prices Exchange rates Trading conditions Confidence (business and consumers)
Key factors affecting long run economic growth
Capital investment Productivity Growth of labour R&D Innovation Enterprise and risk taking
What can help bring about an outward shift of a country’s PPF
Successful supply-side policies
What are the main benefits of economic growth
Higher living standards
Employment effects
Fiscal dividend
Accelerator effect
How does economic growth create higher living standards
Real GNI per capita helps lift people out of extreme poverty
How does economic growth create employment
Sustained growth stimulates jobs and contributes to lower unemployment rates which in turn helps to reduce inequality
How does economic growth create fiscal dividend
Higher economic growth will raise tax revenues and reduce government spending on unemployment-related welfare benefits
How does economic growth create the accelerator effect
Rising growth stimulates new investment e.g. low carbon technologies. Better growth may attract FDI
Is there a virtuous circle of growth
Higher output = increased growth = higher productivity = increased wages = rising consumer demand = higher output
What is balanced growth
Balance between:
- industries
- regions
- urban/rural
- internal/external e.g. bop
- consumption and investment
What is sustainable growth
Meets the needs of current generations without limiting resources for current generations.
- macro stability
- financial stability
- environmental sustainability
What is inclusive growth
- benefits of growth widely distributed
- rising median per capita incomes
- reducing poverty
- improved opportunities for all
- tackle discrimination and barriers
How is it best to sustain economic growth in the long run
- trust
- intra-regional trade
- improving institutions and protecting property rights
- growing a dynamic innovative private sector
- macro policies to control inflationary pressures
- addressing equity / fairness issues
How can capital investment contribute to economic growth
- provides an injection of demand for capital goods industries
- bigger capital stock can lift productivity / incomes
- economies of scale & better competitiveness lower prices
- investment helps to sustain export-led growth adding to GDP growth
What policies attract FDI
- low corporation tax
- subsidies
- trade and investment agreements
- flexible labour
- SEZs
- infrastructure
- allowed to remit profits
- low cost labour
What do main countries rely on as a key source of extra demand and a driver of growth
FDI
Social and economic costs of growth
- risk of high inflation and interest rates
- environmental effects
- inequalities of income and wealth
How does growth create risks of higher inflation and higher interest rates
- Demand pull and cost push inflation
- The central bank may decide to raise interest rates to control inflation
How does growth create environmental effects
- pollution and waste
- unsustainable extraction of finite resources
How does growth create inequalities of income and wealth
- rapid increases in national income may lead to inequality and social divisions
- many of the gains from growth only go to a few people
What happens if inequality grows as a country becomes richer
Raises important questions about a potential trade-odd between equity and efficiency
What can limit the rate of economy growth
- primary export dependency
- conflict / corruption
- human capital weakness
- inequality
Economic growth of china
GDP growth 9% per year
Growth from high levels of investment and strong exports
China in transition to a more sustainable and balanced growth rate
China is moving from the fast export and investment-led growth
Economic reform challenges facing China
- more reliance on domestic market and less on exports
- raise consumption and reduce savings
- grow private sector
- increase innovation
