2.5.1 - Causes of Growth

• The actual growth is the percentage change in GDP. It is when the economy is actually produced more goods and services
• Potential growth is the change in productive potential of the economy over time, so the LRAS or PPF curve shifts.
• Factors which cause economic growth:

  • Improving the labour force, with a better quality due to higher education.
  • A larger labour force. This may be due to migration, birth rates or improved participation rates.
  • Improved technology, which is more productive. This means resources are used more efficiently.
  • More investment
  • Incentives for enterprise
• International trade is important for this. Countries can specialise where they have a comparative advantage, which increases world output and lowers average costs.