Economic Growth
- Created by: queenads
- Created on: 20-10-19 22:42
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- Economic growth and development
- Definitons
- Economic Growth: Expansion in the productive potential of an economy
- Short run economic growth: Increase in real GDP, which is an increase in AD
- Long run economic growth: Expansion in productive capacity of an economy, increase in AS
- Economic Development: Improvement in economic welfare through higher real incomes, literacy, infrastructure, poverty and healthcare
- Economic Sustainability: Allowing economic growth currently and maintain for future generations
- GDP: Measures quantity of goods and services produced in an economy
- Real GDP: GDP value adjusted for inflation
- Nominal GDP: GDP unadjusted for inflation
- Economic Growth: Expansion in the productive potential of an economy
- Causes and measuring growth
- Causes of economic growth
- increase in AD from domestic demand or trade
- improved labour
- improved technology
- more investment
- capital deepening
- Impact of a recession
- negative growth
- negative output and lots of space
- negative growth
- demand-deficient unemplpyment and low inflation
- negative budgets to increased spending on benefit payments and less tax
- less confidence
- Measuring eonomic growth
- Measure of economic welfare, which takes national output, adjusts for leisure and unpaid work as well as environmental damage also being considered
- Human poverty index measures same as HDI but has two different measures for developed and developing countries, both with different criteria
- Multidimensional poverty index, which measures over 100 developing countries, it works income based and measures poverty by what is deprived
- Human development index measures from 0-1, higher values represent higher development and measures, education, life expectancy and living standards
- Gender development index measures gender inequality
- Issues of measuring economic growth
- Does not take income distribution into account
- Needs to be recalculated in terms of purchasing power, determined by cost of living and inflation rate
- large hidden economies such as black market and informal sector
- Causes of economic growth
- Factors contributing to economic growth
- Trade liberalisation: The use of free trade has increased living standards and output from specialisaton
- Fairtrade: Allows a quantity of a good sold above the price equilibrium, it allows communities to develop and promotes self sufficiency
- Developing human capital: Improved skills improves output, productivity and allows advanced technology. It allows businesses to expand and create innovation.
- Promotion of FDI: Allowing capital/funds to be invested to allow a country to develop
- Tourism: Allows a country to be more attractive to FDI, creating jobs and reduce dependency on primary products. However, most profits go back to business
- Microfinance schemes: Makes a country less dependent on aid, allows increased incomes for borrowers (leading to a multiplier effect) and reduce primary product dependency, also reduced loan risks
- Privatisation: Produces an incentive to operate effectively which increases economic welfare. The revenue raised for gov is a one off
- Benefits and Costs
- Consumers: Income increases due to employment and growth, which leads to confidence in the economy. However this is dependent as not everyone benefits equally, there could be demand-pull inflation from increased levels of spending and the implication of the law of diminishing returns
- Firms: Make more profits, which means more investment-which consequently leads to more technological advances, and higher confidence levels. Economies of scale and competition may also make firms more productive and efficient. There are however increased menu costs due ot higher inflation, which means constant price changing to match inflation
- Government: budget improvement due to more tax and less welfare payments. But increased spending if consumption of demerit goods rise
- Living standards: Development of tech to allower greener production of goods and services. Public services improve due to more investment from increased tax revenue. Negative externalities led to long term damage for environment
- Definitons
- Economic growth and happiness
- Easterlin Paradox: Suggests higher incomes represent higher happiness, but not in the long term
- Office of national statistics: Trying to develop more ways of improving national well-being.
- Lewis Model: How a developing country goes from agricultural to manufacturing, by changing prices above wage rate to increase profits which are reinvested to improve business.
- This creates surplus labour in the agricultural industry, which is re-employed into the manufacturing industry.
- However, profits may not be reinvested
- This creates surplus labour in the agricultural industry, which is re-employed into the manufacturing industry.
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