Economic Growth
- Created by: James Baxter
- Created on: 11-04-14 14:13
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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
- Potential
- 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
- Increase in AD
- Causes of POTENTIAL Economic Growth
- Vertical AS shifts to the right
- Increases productive capacity of an Economy.
- Vertical AS shifts to the right
- 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
- Absence of Capital markets
- 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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