economic growth

• economic growth is the growth in value of output in a country which equals the income of the people who produce it
• GDP is the total value of all goods and services produced in a country in a year
• if there is economic growth in an economy, output and income will rise
• rate of growth = change in GDP / original GDP X 100
• GDP per capita = GDP / population
• GDP per capita is the average income for each person in a country and measures the standard of living
• a boom is when there are high rates of economic growth over a long time
• a recession is when there are low rates of economic growth for 2 consecutive quarters
• supply-side factors are ways in which an economy can increase its ability to produce output
• supply-side factors include:

  • education and training
  • labour productivity
  • size of workforce
  • natural resources
  • government policies
  • investment in infrastructure
• infrastructure is the basic systems and services that an economy uses in order to work efficiently
• benefits of economic growth

  • rise in material standard of living (everyone has more output available to consume, this happens when GDP per capita rises)
  • reduction in poverty (government ensures a basic minimum standard of living by providing social protection benefits)
  • rise in welfare of population (more tax, greater access to healthcare and education, higher employment rates and literacy)
  • rise in employment (more workers required to produce extra output)
• costs of economic growth

  • environmental costs (more pollution, global warming
  • congestion (growth in concentrated areas, spend longer time getting work, lower quality of life)
  • loss of non-renewable resources
  • lower quality of life (growth increases material standard of living, but can impact lifestyle negatively, e.g. workers may move from countryside into cities for work, obesity, diabetes, etc.)
  • inequalities of income and wealth (gap between richer and poorer can widen)
  • inflation (if there is excess demand, prices will rise)
• economic growth cycle:

  1. first increase in economic growth
  2. higher tax revenue
  3. public sector investment
  4. private sector investment
  5. increased productive capacity
  6. further economic growth