2.1 Economic growth

• Economic Growth: An increase in output over time with the same resources
• National Income: Measure the monetary value of the flow of output of goods and services produced in an over a period of time
• Nominal GDP: GDP at current price. Inflation is not taken into account
• Real Gross Domestic product: GDP adjusted for inflation
• Gross Net Income: Gross Domestic product plus net property income from abroad
• The different stages if the economic cycle: boom recession trough
• The policy objective of economic growth:

  The UK government seek a steady rate of economic growth. It is often the primary objective as it is an indicator of the health of an economy and performance of other key indicators such as inflation or employment rates and the efficacy of policy measures.
• The formula to calculate the rate of change in GDP:

  (Change in GDP / Original GDP) x100
• Economic cycle:

  Short-run fluctuations of national output (GDP) around its long-term trend. Stages include boom, slowdown, recession and recovery.
• Boom:

  The rate of actual economic growth, exceeds the trend rate and the output gap is narrowed.
• Slowdown/downturn:

  Economic growth rates begin to fall and approach zero.
• Recession:

  Two consecutive quarters of negative economic growth, illustrated by a fall in output, employment, investment and confidence.
• Recovery/upturn:

  Economic growth becomes positive again.
• Causes of short-run economic growth:

  On the demand-side changes are due to changes in the components of AD affecting the circular flow of income. Examples include:

  1. Lower interest rates​

  2. Rising house prices​

  3. Lower taxes​

  4. Higher confidence​

  5. Rising exports

  On the supply side it is the result of falling factor input prices
• Causes of long-run economic growth:

  Measures that increase the productive potential of the economy include:

  1. Increase investment in productive capacity​

  2. Better education and training to increase labour productivity​

  3. Improvement in technology​

  Improvements in infrastructure​

  4. FDI from MNCs​

  5. Net migration causing a rise in the labour supply
• Benefits of economic growth:

  1. Higher incomes = better standards of living​

  2. Lower unemployment​

  3. Reduction in absolute poverty levels

  4. Improved government finances​

  5. Improved public services​

  6. Money can be spent on protecting the environment
• Costs of economic growth:

  1. Demand-pull inflation​

  2. Income inequality

  3. Relative poverty could rise

  4. Increased stress/quality of life​

  5. Boom and bust cycles​

  6. Environmental problems​
• Long Run Economic Growth: An increase in the productive potential of an economy by increasing the quantity or quality of factors of production
• Long Run Economic Growth: An increase in the productive potential of an economy by increasing the quantity or quality of factors of production