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Economic Growth (Causes of economic growth (Supply Side Factors (Increase…
Economic Growth
Causes of economic growth
Supply Side Factors
Increase in the quantity of factors of production
a. increase in the labour force
b. Increase in the availability of natural resources
c. Increase in capital stock
Increase in the quality of factors of production
a. Increase in the labour productivity
b. Increase in land productivity
c. Increase in capital efficiency
Increase in the level of technology
Demand Side Factor
-Do not affect the productive capacity of the economy directly HOWEVER they affect actual growth
Structural Factors
-Favourable cultural,social and political environment promotes economic growth
External Factors
: If a country has a large foreign trade sector the rate of growth of the rest of the world is important to the economy of the country
Policies to encourage desirable rates of economic growth
Fiscal policy
Policies to encourage investment
Policies to encourage technological improvements
Monetary policy
As the interest rates /money supply is changed it will result in chnages to the aggregate demand which will in turn result in changes in the net exports,actual growth and potential growth may increase if the productive capacity of the economy expands as a result
Aggregate Supply Side Policies
Economic growth is achieved through the development of human capital through training and retraining of skills,development of infrastructure and development of RND resulting in technological progress
Consequences of economic growth
BENEFITS
a. Increased levels of consumption- Higher SOL
b. Helps avoids other macroeconomic problems
Healthy BOP reduces unemployment with higher actual growth
c. Enables easier redistribution of incomes
d. Society can afford to care more for the environment
COSTS
a. The current opportunity cost of growth -less current consumption
b. Environmental costs and depletion of non-renewable resources
c. Effects on income redistribution
d. Effects of employment
e. Social effects
f. Impact on balance of payment
SHOULD COUNTRIES PURSUE GROWTH :question:
depends on what the government views a desirable society to be
A decision is made by weighing the cost and benefits
An increase in the real national output
Sustainable Growth
- rate of growth in the long run without any significant issues such as depleted resources
Actual Growth: caused by an increase in the aggregate demand that leads to an increase in national output or the equilibrium national income
Potential Growth: The rate of growth of potential output ,determined by the annual increase in LRAS
Inclusive Growth
: Economic Growth that creates opportunity for all segments of the population and distributes prosperity fairly across the society
ECONOMIC DEVELOPMENT
- Economic growth+Qualitative improvement in the SOL
Measurement of Economic Growth
Real GDP =Nominal GDP/GDP deflator x 100