Economic growth

Economics 2.1.1

What is economic growth?

An increase in a country's real GDP over time, reflecting higher production of goods/services.

What are the key indicators of economic growth?

Real GDP (adjusted for inflation, shows actual purchasing power)

• Nominal GDP (measured at current prices, not adjusted for inflation)

• GDP per capita (GDP per person, measures living standards)

What is the difference between real and nominal GDP?

Total GDP measures the economy’s size, per capita GDP measures individual prosperity.

What is the difference between value and volume in GDP?

Value refers to monetary worth, volume measures quantity of output.

What does Gross National Income (GNI) measure?

Total income earned domestically and abroad by residents/businesses.

What is Purchasing Power Parity (PPP)?

An adjustment for cost of living differences between countries.

What causes short-term (actual) growth?

increase in aggregate demand (AD):

• C (Consumption)

• I (Investment)

• G (Government Spending)

• (X-M) (Net Exports)

What causes long-term (potential) growth?

Increase in aggregate supply (AS) via:

• Workforce expansion

• Technological innovation

• Higher productivity

• Better infrastructure

what are the benefits of Economic growth

• Higher incomes & living standards

• More government revenue (for public services)

• Greater employment opportunities

One real life example of Economic growth taking place

The UK’s growth in the 1990s improved public services.

what are limitations of GDP

• Does not include unpaid work (e.g., housework, volunteering)

• Environmental damage is not reflected

• Income inequality is overlooked

Why do countries have different growth rates?

Differences in resources, infrastructure, and policies.

Example of different countries with different growth rates

Germany has stable growth, India has rapid growth due to industrialization.

what is Pros for sustainability and give an example

Uses renewable resources, prevents environmental harm.

UK’s offshore wind farms.

What is the Cons of sustainability and example

Unsustainable growth depletes resources.

Brazil’s deforestation.

what is the Pros in Equity and Quality and give example

Fair growth reduces inequality, improves education/health.

Sweden promotes inclusive growth.

What is the Cons of Equity and Quality and give example

Unequal growth can marginalize groups.

India’s growth hasn’t solved rural poverty.

What are the pros in quality of Life and example

Higher GDP funds public services, tech innovation.

NHS improved from UK’s growth.

What is the Cons of Quality of Life

Overfocus on GDP ignores well-being.

Japan’s intense work culture harms quality of life.

What are the environmental effects of economic growth and example

Economic growth increases carbon emissions unless managed sustainably.

China’s industrialization caused severe pollution.

What are the social effects of economic growth and example

Growth can reduce poverty but may strain infrastructure.

Lagos, Nigeria struggles with rapid urbanization.

How does innovation drive economic growth?

Technological advancements improve productivity and create new industries.

What are diminishing returns to growth?

Beyond a certain point, extra growth has less impact on welfare.

Real world examples of Economic growth good , bad , ugly

• Boom: 1990s US tech boom → high incomes & innovation

• Recession: 2008 Financial Crisis → GDP/employment decline

• Recovery: Post-COVID fiscal & monetary policies (e.g., UK furlough scheme)