Economic Growth

• Economic Growth

  Expansion of the Productive Potential of an economy
• How can Economic growth be depicted

  • outward shift in PPF or LRAS curve
• What does economic growth aim to achieve

  Macro stability
• GDP

  it measures the quantity of goods and services produced in an economy
• What does economic growth lead to

  Higher living standards and better employment opportunities
• Real GDP

  the value of GDP adjusted for inflation
• Nominal GDP

  the value of GDP without being adjusted for inflation
• Why is GDP difficult to measure economic growth

  • Does not give any indication of the distribution of income
  • may need to be recalculated in terms of purchasing power due to international price difference (CoL in UK is higher than in Iran)
  • hidden economies like black markets not accounted for in GDP
• What can cause economic growth

  • Increase AD from domestic demand
  • Improve labour force with better quality or quantity
  • Improving productive potential
  • Improved technology
  • More investments
  • Capital deepening - increase size of physical capital stock