21 Economic growth

Below PPC curve or to the left of LRAS

• resources not being used to full potential

  • underemployment of resources/factors of production

Why is point B not on the ppc curve

• 

• economy never fully employ all resources

  • always some unemployment - natural rate

How can growth occur in LR

Increase the full employment level of output or potential output

• outwards shift in ppc

• result in increase of quality/quantity in economy: FOP’s

What are deflationary gaps a result of

• result of a fall in economic growth in short run

  • solved using demand (expansionary fiscal and monetary) policies

How to measure growth rate - calculation

Positive consequences of economic growth - larger population

• Increase in AD due to pop growth

  • as long as there is improvement on supply side, shift LRAS, GDP increase without P increase

When does AD grow

Increase in population size and income

What is economic growth, increase in national output equal to

Increase in national income

Positive consequences of economic growth

• Increase in population, increase LRAS

• Since economic growth, equal to increase in national income

• if GDP per capita depends on population growth, income of average person increases, equated with increase living standards

• leaps in technology contribute to improvement in medicine computers etc

  • life more pleasent and easier, higher living standards

• Higher income, greater tax revenue

  • more spending on merit and public goods

  • also redistributes income

• Internationally

  • growth result of higher productivity, improve comp of country’s export, increase AD

  • Higher NI, increase demand for imports , so final impact on net exports depend on many factors

• Argument - as NI rises so do levels of education and human capital, greater demand for freedom and democracy

Negative consequences of economic growth

• drive for economic growth and higher incomes can lower living standard

  • increase income can sacrifice leisure time and neglect of personal relationships

  • more people earn, more people want, never satisfied

• Structural change in economy

  • change within sectors

  • Structural changes = structural unemployment

• Tech and globalisation contribute to structural changes

  • ability of firms to relocate to cheaper countries

  • technology reduce d for labour

• economic growth can be unsustainable

Why is economic growth unsustainable

• higher emission of greenhouse gases

• higher NI, higher level of waste

• Depletion of renewable resources