Economic Growth

GDP (gross domestic product)

Measure of the size and health of a country’s economy over a period.

GDP per capita

Total value of goods / services produced in a country divided by its population.

What does GDP per capita say about an economy?

• General living standards

• General income levels

• General output per person

GDP per capita EQUATION

GDP per capita = \frac{gdp}{population}

Economic Growth

Sustained increase in an economy’s ability to produce goods /services.

Economic growth rate EQUATION

change in GDP / original GDP x 100

Inflation

Sustained increase in general price level of goods / services over a period of time

Two different types of economic growth?

1. Demand-Led

2. SUpply-Led

What is Demand-Led economic growth?

When industries respond to an increase in demand.

Factors causing Demand-Led economic growth

• Income rise: more spend money

• Taxes are cut: more spend money

• Interest rates are cut: People will spend more as keeping isn’t worth

• High confidence and expectations

What is Supply-Led economic growth?

When the economy’s ability to produce increases, increasing output.

Factors causing Supple-Led economic growth

• Increase in quality and quantity of resources and factors of production

Ways to achieve Supply Led Economic Growth: Increasing Capital

Spending on premises, machinery and equipment.

→ Economy has the capacity to increase productivity.

Ways to achieve Supply Led Economic Growth: Technological Progress

Quality of capital goods improve.

Ways to achieve Supply Led Economic Growth: Improved Training

Better skills = better quality and quantity of production.

→ Education and training raises people’s productivity and creativity, promoting entrepreneurship and technological advances.

Ways to achieve Supply Led Economic Growth: Government Investment

Government investment in infrastructure and technological advancement, such as transport networks and power supplies.

Ways to achieve Supply Led Economic Growth: Discovery or development of natural resources

Discovery of buried natural resources or development of renewable energy sources.

Boom

A period of rapid economic growth.

Features of a Boom period

• rising GDP

• falling unemployment

• increased inflation.

Recession

A period of significant decline in economic activity.

Rising Unemployment Chain-Of-Events

1. Rising unemployment

2. Falling incomes

3. Falling demand for most goods / services

4. Fewer goods / services are sold

5. Falling revenue and profits

6. Falling demand for labour

7. Lower investment

8. Further Unemployment

   → Fewer services as shops close

   → Higher social security payments / benefits

   → Lower government tax revenues