Economic growth

• Economic growth


  Increase in real GDP - increase in the value of national output/national expenditure
• Economic growth


  • Important macro-economic objective
  • Enables increased living standards
  • Improved tax revenues
  • Helps to create new jobs
• Aspects of economic growth

  • Causes of economic growth
  • Costs/benefits of economic growth
  • Policies to improve economic growth
  • Different types of economic growth
  • Recessions (negative economic growth)
• UK real GDP since 1955 showing sustained rise in national output despite brief periods of negative economic growth
• Causes of economic growth

  Rising demand and increase in productive capacity
• Causes of economic growth

  1. Increase in aggregate demand (C+I+G+X-M)

  2. Increase in aggregate supply (increase in capital, investment, higher labour productivity)
• Productivity


  Output per worker
• Development of new technology (computers, machines) means workers can produce more, which is a key factor behind economic growth
• Policies to increase economic growth

  • Supply-Side Policies
  • Monetary policy
  • Fiscal policy
• Supply-Side Policies


  • Government attempts to increase productivity and efficiency in the economy
  • Aim is to shift Long Run Aggregate Supply (LRAS) to the right
  • Examples: income tax cuts, privatisation, reduce red-tape, spending on education and training
• Monetary policy


  Reducing interest rates to stimulate economic activity and increase AD
• Fiscal policy


  Expansionary fiscal policy - higher government spending and/or cutting taxes to boost aggregate demand
• Benefits of economic growth

  • Higher incomes for workers and firms
  • Increased tax revenue for government
  • Reduced government debt
  • Creates employment and reduces unemployment
  • Positive feedback loop - higher growth encourages investment
  • Reduction in absolute poverty
• Potential costs of economic growth

  • Inflation
  • Current account deficit
  • Environmental costs
  • Decline in living standards
• Types of economic growth

  • Boom and bust economic cycles
  • Export-led growth
  • Consumer-led growth
  • Commodity exports
• Long-run trend rate of economic growth

  Average sustainable rate of growth over a period of time, depends on growth of productivity and levels of technology and investment
• Other Definitions


  • Balanced growth
  • Trade cycle
  • Sustainable growth
• A recession is a period of negative economic growth, where output falls for two consecutive quarters