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Economic Growth (Constraint on Economic Growth (Economic growth may be…
Economic Growth
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Aggregate Demand
there is no point in an economy growing in terms of aggregate supply, if there is not a corresponding increase in aggregate demand.
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In the short term, economic growth is caused by an increase in aggregate demand (AD).
If there is spare capacity in the economy then an increase in AD will cause a higher level of real GDP
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Hysteresis
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Economics is the delayed effects of unemployment, possibly resulting from a demand deficient recession
As unemployment increases, more people adjust to a lower standard of living.
As they become accustomed to the lower standard of living, people may not be as determined to achieve the previously desired higher living standard. In addition, as more people become unemployed, it becomes more socially acceptable to be or remain unemployed.
After the labour market returns to normal, some unemployed people may be disinterested in returning to the work force. This results in loss of skills the longer people are out of work and potentially a 'brain drain' as skilled worker move to other countries in search of better employment opportunities.
What is Economic Growth?
Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another.
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