Economic growth

what is economic growth?

An increase in real GDP in an economy in a year caused by an increase in AD or an increase in LRAS.

what would cause economic growth in short run?

Changes in the component of Aggregate demand

What are examples of causes of economic growth in the short run?

1. Lower interest rates

2. Lower income/corporation tax

3. higher business/consumer confidence

4. higher government spending

5. weaker exchange rate

What causes of economic growth in the long run?

An increase in LRAS ( increase productive capacity of the economy )

What factors cause changes in LRAS?

1. change in quality of FOP

2. change in quantity of FOP

3. productive efficiency

what are real life examples of factors that cause changes in LRAS?

1. increase in labour productivity

2. increase in workforce size

3. investment

4. infrastructure improvements

5. increase in competition

6. new resource discoveries

what the benefits of economic growth?

2. higher disposable income

3. higher employment

4. higher profit for firms

5. fiscal dividend for gov (increase in tax revenue)

what are the costs of economic growth?

1. inflation

2. income inequality

3. environmental costs

4. current account deficit worsens