Economic Growth

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  • Economic Growth
    • Increase in a country's productive output potential
    • Measured in Real National Output % change
      • Potential
        • Increase in productive capacity of the economy
      • Actual
        • Increase in real incomes or GDP
    • Shown by an outward shift on PPF or LRAS
    • Benefits
      • Increased Tax revenues
      • Higher profits for companies
      • Higher living standards
      • More Employment
      • More consumer and business confidence
      • Export led growth = increase in balance of payments
    • Disadvantages
      • Inflation risk
      • Environmental concerns
      • More working hours demanded
      • Structural changes in jobs
    • Inadequate for living standards over time
      • Ignores population changes
      • Inflation must be accounted for
      • Ignores elements that may change self produced goods
      • Externalities excluded
    • Causes of ACTUAL Economic Growth
      • Increase in AD
        • Consumption
        • Investment
        • Gov spending
        • Exports
    • Causes of POTENTIAL Economic Growth
      • Vertical AS shifts to the right
        • Increases productive capacity of an Economy.
    • Constrains on Growth
      • Absence of Capital markets
        • A-symmetric information in credit markets - Vender can charge more
        • In Sub Saharan Africa > 50% interest charge on credit cards
      • Government instability
        • Incompetance or lack political backing
        • Political tension
        • Govs may have fiscal deficit - little power to increase expenditure to stimulate growth
      • Labour Market Problems
        • Shortage of skilled labour
        • Prevented by education and allowing immigration
    • Costs of Growth
      • Income inequality
      • Environment problems
      • BOP problems and current account
      • Monopolies
      • Rapid growth can affect markets cost push inflation


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