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Chapter 10: Economic Growth (Causes of Economic Growth (Supply Side…
Chapter 10:
Economic Growth
Actual Economic Growth
Increase in actually produced income (eg. GDP growth rate)
Caused by increase in agg. demand or SHORT-RUN agg. supply
Potential Economic Growth
Increment of potential output
eg. rightward shift of Yf on the AD/AS curve (full employment level)
Caused by increase in LONG-RUN agg. supply
Inclusive Growth
Creates opportunities for all segments of the country's population --> distributes dividends both monetary and non-monetary
Economic Development
Accompanied by qualitative concept of Standard of Living
• Changes in economic, social and political structure of country
Economic growth is a SUBSET of economic development
Measurement of Economic Growth & Development
Economic Indicators
Real GDP per capita
Poverty
Income Distribution
Extent of Trade
Growth Mesaurement
Gross Domestic Product (GDP)
Non-economic Indicators
Physical Quantity of Life Index (PQLI)
Measure of Economic Welfare (MEW)
Human Development Index (HDI)
Causes of Economic Growth
Supply Side Factors
Increase in Quantity of Factors of Production
Increase in Quality of Factors of Production
Increase in level of Technology
Demand Side Factors
Structural Factors
External Factors
Policies to encourage desirable rates of economic growth
Fiscal Policy
To encourage investments
To encourage technological improvements
Monetary Policy
Aggregate Supply Side Policy
Consequences of Economic Growth
Costs
Opportunity cost of growth
Environmental costs/Depletion of non-renewable resources
Rich get richer, poor get poorer
Unemployment rates may increase with change in skills demand
Negative Social effects
(eg. stress levels go up)
Balance of Payment Current Account Deficit
Benefits
Increased levels of consumption
Higher SOL
Avoids other macroeconomic problems
Enables easier redistribution of incomes
Society can afford to care about the environement
Does not mean they will
Policies used in SINGAPORE
To promote investment in physical and human capial
To encourage Innovation and a Knowledge-Based Economy
Can be represented on a PPC curve
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