1. Economic Growth

What is economic growth?

A long-term expansion of the productive potential of the economy, causing an increase in the value of goods and services produced over time.

What is economic growth an indicator of?

A healthy economy

State some factors which contribute to economic growth.

- Productivity of workers e.g. healthcare, training

- Interest rates

- Wages

- Consumer confidence

- Investment in technology

- Investment in infrastructure

- Stable government policy

State the two ways to measure economic growth.

- Actual growth (GDP)

- Potential growth (trend growth)

What is actual growth?

The percentage annual increase in a country's real GDP over a period of time and national output.

What is actual growth caused by?

An increase in aggregate demand

What is potential growth?

The long run expansion of an economy's productive potential when the economy increases in capacity and uses all resources

What is potential growth caused by?

An increase in aggregate supply

Why is economic growth overall important?

Are living standards are influences by our access to goods and services. Growth allows individuals to enjoy rising living standards and be better off.

State why economic growth is important for businesses.

- Increased profits

- Rise in average living standards

- The creation of new jobs

- Lower unemployment

- Increased tax revenues for government

- More business confidence

- Increased capital investment

- Technological innovation

What is the rate in economic growth?

The annual percentage increase in real GDP.

What two factors affect economic growth?

- Demand side factors (aggregate demand)

- Supply side factors e.g. productive capacity

Draw a long run aggregate supply graph.

Explain how demand side factors influence economic growth.

AD = C+I+G+(X-M)

A rise in any one of these can lead to higher AD and higher economic growth.

State the factors which may affect aggregate demand. (supply side factors)

- Interest rates

- Consumer confidence

- Asset prices e.g. house prices rising

- Real wages

- Value of exchange rate

- Banking sector

What is long-run economic growth influenced by?

Factors which influence the growth of LRAS.

What is long run aggregate supply? (LRAS)

Aggregate supply when the economy is producing at its productive potential. If more factors of production become available or productivity rises, the LRAS shifts right.

What can LRAS be influenced by?

1. Levels of infrastructure

2. Human capital e.g. productivity, motivation, training

3. Development of technology

4. Strength of labour markets

What is productivity?

Output per worker.

Why does productivity have a strong bearing on the long-run trend rate of economic growth?

It is determined by technology, investment and skills of the labour force which impact long run economic growth.