Economic Growth (MEASUREMENT (a) The percentage change in a nation's…
a) The percentage change in a nation's real national income.
b) Rate of growth of real GDP over time
Negative or slow economic growth
Expansionary fiscal policy: Increase in government expenditure and decrease in taxes increase AD and national income by the multiplier effect, resulting in actual growth.
Expansionary monetary policy: An increase in money supply results in the fall in interest rate and an increase in investment, increasing AD and national income by the multiplier effect, resulting in actual growth.
Protectionism: Increases price of import and increases net export, assuming Marshall Lerner Condition holds. Thus, AD increases and national income increases by the multiplier effect, resulting in actual growth.
Fall in any components of AD leading to a slow or decrease in national output.
Inflationary economic growth
Actual growth increasing rapidly with little to no potential growth. This causes AD to rise without LRAS rising, leading to an increase in GPL due to upward pressure on prices and limited resources.
Contractionary Fiscal policy
Contractionary monetary policy
Supply side policies
Capital accumulation to increase quantity of resources and improve productive capacity.
The percentage change in a nation's real national income. Increase in quantity of labour to improve productive capacity and LRAS
Investment in human capital by training and education to improve efficiency and quality of labour force.
Technological advancements through R&D and importing foreign technology. This will increase output with the same amount of input.
Dynamic entrepreneurship to look for new markets and methods of production.
CONSEQUENCES OF ECONOMIC GROWTH
More equitable income redistribution with progressive tax system, where tax increases when income increases
Increases level of consumption and higher standard of living with an increase in real GDP per capita
With greater affluence, people are more conscious with the aspects of the quality of life such as the environment. This leads to more stringent regulation of pollution.
Creates job, reduces unemployment and increases national income and actual economic growth. Potential growth results in an increase in productivity and reduction in structural unemployment, and lowers demand demand-pull inflation.
Growth shows that it's a stable economy, promotes higher confidence level and results in an increase in FDI
Worsen income distribution between rich and poor. Low skilled workers struggle to keep up with technological advancements and are easily replaced by machines. The results in these workers taking on lower-paying jobs. On the other hand, the highly educated are sought after in the economy and enjoy high-paying jobs.
Depletion of natural resources that are non-renewable and impedes future potential growth.
Structural unemployment due to rapid development of the economy. Low skilled workers are unable to improve themselves to fit in with new jobs that require higher level skills. --> Reduced current consumption as people save more and consume less.
Environmental pollution with rapid industrialization without careful management
There will be demand-pull inflation if potential growth does not increase in tandem with actual economic growth.
The expansion or increase in an economy's level of output or GDP over time
Actual Economic Growth: Annual percentage increase in national output
Potential Economic Growth: Annual percentage increase in an economy's capacity to produce.