Economic growth- causes, constraints & costs

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  • Created by: Lottie
  • Created on: 24-03-12 15:57

Economic growth

  • Actual growth- increase in real GDP
  • potential growth- increase in capacity
  • boom- GDP rises fast
  • recess- GDP falls for at least 2 consecutive quaters
  • slowdown- level of GDP may be rising but below the trend line
  • output gap - difference between actual and potential output
  • positive output gap - growing fatser than trend line
  • negative output gap- growing below trend line

CAUSES OF ACTUAL ECONOMIC GROWTH

  • Aggregate demand= C +I +G + (X-M)
  • increased consumer confidence = more consumption vice versa
  • increased gov spending increases AD vice versa
  • increase in AS= production costs fall= more competitive = cheaper/ deregulation= more consumption

CAUSES OF POTENTIAL ECONOMIC GROWTH

  • only occurs when AS curve shifts to right
  • this allows the economy to increase what it could produce

CONSTRAINTS OF GROWTH

  • abscence of capital markets- assymettric info as lender knows v little…

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