3.1 Economic Growth

• Aggregate demand refers to the total level of demand for all goods and services in the economy.
• Aggregate demand refers to the total level of demand for all goods and services in the economy.

  The equation for this is:

  $AD=$$C+$$I +$$G+$$(X-M)$
• Economic growth is defined as ''Growth in GDP (the value of output) over time.''
• Economic Growth is measured using the percentage change in 'real' Gross Domestic Product (GDP). Economic growth occurs when the total cash value of all the output produced in an economy in a given time period grows.
• GDP is defined as ''the total value added of goods + services produced in the country in the year.''
• The equation to calculate economic growth is:

  % Economic Growth = Numerical change in GDP/ x100

  Original value of GDP
• Total GDP can sometimes be misleading. In summary, a higher population results in there being more workers in an economy (so more labour as a factor of production). This is why economists make use of GDP per Capita.

  GDP per capita = GDP divided by the population.

  This gives a clear idea of the level of GDP per person in an economy, and can sometimes be used to make comparisons of standards of living in different countries. The higher level of GDP per capita, the better standard of living.
• The difference between GDP and GDP per Capita:

  GDP per Capita -> The average income of each person in an economy.

  GDP -> The total value of incomes and output in the economy as a whole.
• Overtime, Economists have observed that an economy moves through an 'economic cycle', perhaps every 5-7 years. *see notes for example*

  A 'Boom' is defined as ''A period of high economic activity and high levels of employment''

  A ''Recession'' is defined as ''A period when the country's GDP falls for two (or more) consecutive quarters.''
• Possible causes of Economic Growth:

  Generally, the economy can grow because it is able to produce more goods + services. Therefore the quality and quantity of factors of production are important in helping to supply more. It can also arise because more is demanded in the short run. This can result from a change in government policies.
• The general causes of economic growth are:

  (1). Investment - This is the purchase of capital goods. If an economy invests more in capital goods then it will be able to produce more goods + services in the future.

  (2). Changes in technology - Improved technology + better capital equipment can lead to faster economic growth.

  (3). Education + Training - Better skilled workers leads to higher productivity, so in turn, the same total number of workers produce more output... This is economic growth.
• More causes of economic growth are:

  (4). Increasing the size of the workforce - If an economy has more workers as a factor of production then it should be able to produce more output. Rises in the birth rate + increases in immigration can both increase a country's workforce overtime, alongside increasing the state retirement age.

  (5). Discovery of natural resources- If a country has an abundance of natural resources it can cause an economic growth as they have more to supply & export. Some countries require natural resources for their development such as Zambia's reliance on Copper.
• More causes of economic growth are:

  (6). Increasing labour productivity - As well as increasing the number of workers, an economy will also increase output/ production if each worker produces more (if their productivity rises). But a rise in productivity can be achieved by increasing investment in capital goods, the introduction of new technology and more spending on education and training.

  (7). Government policy - Fiscal policy, monetary policy or 'supply-side- policies
• A benefit of Economic growth is that there will be a rise in tax revenues for the government. By increasing the labour force, there will be a rise in economic growth, leading to more people in employment and greater income tax revenues. Alternatively, if more people are in employment, then more people will have a greater disposable income, so consumers have more incentive to spend more. This means there will be more tax revenue from expenditure taxes (e.g. VAT), so overall the govt. budgetary position is improved, meaning there is extra revenue to improve living standards and reduce poverty.
• A cost of Economic Growth is that a rise in economic growth will lead to a rise in demand for g+s, and if firms can't meet the increased production levels then prices will rise, known as demand-pull inflation *see diagram in notes*. In order to avoid this firms may try to increase production, by potentially building more factories, which would lead to a rise in negative externalities and CO2 emmissions, causing sea levels to rise and impacting the environment.
• In Judgement, the benefits of economic growth will depend upon exactly what level of economic growth there is, as it may not have such a significant effect.
• Economic sustainability is defined as ''the best use of resources to create responsible growth or development now and into the future''
• The impact of economic growth on economic sustainability is that growth in the economy could lead to a rise in negative externalities, which could result in overconsumption and overproduction of goods society does not want. Scarce resources are then wasted in production/ consumption.
• Social sustainability is defined as ''the impact of growth + development that promotes an improvement in quality of life for all, now and into the future''
• The impact of economic growth on social sustainability is that people may have a lower quality of life from moving to boring and repetitive jobs that may be better paid. Also, economic growth can cause greater income inequality.
• Environmental sustainability is defined as ''the impact of growth or development where the effect on the environment is small and possible to manage now and into the future''
• The impact of economic growth on environmental sustainability is that it may lead to greater air pollution from more deliveries and vehicles, global warming from increased CO2 emissions and more congestion as a result of more vehicles.