Economic Growth

• Economic Growth - an increase in the production of goods and services in an economy.
• Economic growth is stimulated by:

  • Monetary Policy (Central Bank)
  • Fiscal Policy (Government)
  • Supply Side Policy
• Circular Flow of Income - the movement of money through an economy

  • Money flows from producers to workers as wages and flows back to producers as payment for products
• Gross Domestic Product (GDP) - the total value of the goods and services produced in a country during a specific period of time

  • used throughout the world as the main measure of output and economic activity
• Measuring GDP - adding up all of the money spent by consumers, businesses, and government in a given period

  • The sum of all purchases or the sum of all products produced in an economy
  • Can be difficult to measure due to black markets and unreported incomes
• GDP per Capita - used to get a measure of the standard of living in an economy

  • If GDP rises faster than the population increase = higher standard of living
  • If GDP rises slower than the population increase = lower standard of living
• Nominal GDP - not adjusted for inflation

  • Does NOT provided an accurate reflection of economic growth
• Real GDP - adjusted for inflation

  • Provides a more accurate reflection of economic growth
• Causes of a Rise in GDP (Economic Growth)

  • Increased spending due to increased confidence
  • Tax cuts to increase disposable income
  • Lower interest rates
  • Increase/Improvement in resources (Factors of Production)
• Policies to promote economic growth

  • Lower Interest Rates (Monetary Policy)
  • Lower Taxes (Fiscal Policy)
  • Increased Govt Spending (Fiscal Policy)
  • Improved Education/Training (Supply Side Policy)
  • Innovation
• Costs of Economic Growth

  • Increased Pollution
  • Inflation
  • Greater divide between classes
• Recession - reduction in real GDP over two consecutive quarters (6 months)
• Impacts of a Recession:

  • A decrease in aggregate demand or supply
  • Higher unemployment
  • Lower standard of living
  • Reduced investment
  • Reduced production
  • Reduced Tax Revenue
• Economic Growth Rate - percentage change in GDP

  • A decrease in growth rate does not mean a decrease in production
• International Monetary Fund (IMF) - organization that works to achieve sustainable growth and prosperity for all of its 190 member countries.
• Sustainable Economic Growth - economic development that attempts to satisfy the needs of humans but in a manner that sustains natural resources and the environment for future generations.