Economic growth

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  • Created on: 04-03-12 12:44
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Economic growth
Causes of growth
Short term ­ increase in any of the components of AD
Lower interest rates- decreases the cost of borrowing = increase spending & investments
Increases wages- increased disposable income= consumption
Increased gov spending- part of AD
Cuts in income tax- rises consumer confidence & more disposable incomes
Long term- increase in AS
Increased capital- e.g. new investments
Increase in labour productivity
Discovery of new raw materials
Technological improvements
potential growth- an increase in the productive capacity of the country
actual growth- increase in real income/domestic product/ % output
Costs of Growth
income inequality- unskilled will suffer- will need skills to keep up
type of production changes-short term unemployment for people
environmental problems- e.g. depletion of non renewable resources
Bottle necks- little spare capacity = rise in price
Monopolies develop
Short term inflation
Boom & bust economic cycles- if it is unsustainable then high inflationary growth may be
followed by a recession
How GDP measured?
Gov measures
Measured in quarters
Benefits of Growth
Employees- increased incomes, living standards etc.
Firms- profit= can invest more
Gov- higher spending without taxes, fewer unemployment benefits, good fiscal
Constraints of Growth
Gov instability- cannot attract inward investments
Fiscal deficit
Labour market problems- shortage of skilled labour, in rich countries low birth rate meaning
small workforce


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