Economic growth

all of 2.5 notes on the spec

What is economic growth?

An increase in the productive potential and output of an economy over time.

What is potential economic growth?

An increase in the productive capacity of an economy.

What is actual economic growth?

An increase in real output (real GDP).

What is Aggregate Demand (AD)?

Total demand in an economy.

AD = C + I + G + (X − M)

What causes short-run economic growth?

An increase in aggregate demand (AD).

What happens when AD increases?

Real output rises and unemployment falls.

What determines the size of the AD increase?

The marginal propensity to consume and the multiplier effect.

Give examples of supply-side factors causing LRAS to shift right.

• Innovation

• Investment

• Education

• Population growth

What are the stages of the economic cycle?

• Boom

• Recession

• Recovery

What is a positive output gap?

When actual growth is above potential growth (AD > AS).

What is a negative output gap?

When actual growth is below potential growth.

What happens in a boom?

• Unemployment falls

• Economic growth rises

What happens in a recession?

• AD falls

• Output falls

• Unemployment rises

How does growth affect unemployment?

Unemployment decreases.

How does growth affect wages and income?

Wages and income increase.

How does growth affect government tax revenue?

Tax revenue increases.

How does growth affect living standards?

Living standards generally rise.

How does growth affect investment?

Investment in capital increases.

What environmental cost can growth cause?

Environmental damage. however they have more money to invest in better less damaging production methods

How can growth affect inequality?

increases inequality

What resource problem can growth cause?

Depletion of natural resources.

What long-term issue can growth create?

Sustainability problems.

How does growth benefit governments?

• More tax revenue

• More spending on healthcare and education

• Investment in infrastructure

What costs can governments face during growth?

• Environmental management costs

• Possible budget deficits

How does growth benefit consumers?

• Higher incomes

• More goods and services

• Improved quality of life

What problems can consumers face during growth?

• Rising house prices

• Higher cost of living

• Inequality

How does growth benefit businesses?

• Higher demand

• Increased profits

• Expansion opportunities

What other benefits do firms gain from growth?

• Improved technology

• Increased exports

• More investment

What costs can growth create for businesses?

• Higher wages

• More competition

• Pressure to increase production

How does growth affect living standards?

• Higher incomes

• Better access to goods and services

• Higher employment

What three things does the impact of growth depend on?

• Distribution of income

• Environmental sustainability

• Inflation trade-offs

evaluation points for growth

• rate of growth

• existing problems

• leval of inflation

• sustainability

• outweigh costs