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High and Sustained Economic Growth (Problems of recession (Definition…

- - - - SR: Determined by change in SRAS or AD
        Rapid rise in AD (economic boom) creates unplanned fall in stocks, stimulates firms to increase production, increasing output. Reduces slack in the economy in terms of unused resources. The faster the rise in AD, the higher the SR rate of actual growth
        Business cycle: alternating cycle of economic booms and recessions
        Increase SRAS due to lowered COP), excess output at current price level. Price levels fall, purchasing power of households increase, spending on G&S increase, AD increases
      - PPF Model: Movement outwards of the production point
    - - Determined by the increase in LRAS (i.e. increase in productive capacity)
      - PPF Model: Outward shift of the PPF curve
    - - Amount of idle resources and unemployment is reduced
      - Inflationary pressures build up, mainly through higher wages
      - Excess labour demand leads to real wage growth outstripping productivity growth
      - Unit labour costs increase, leading to an erosion of export competitiveness
      - GDP growth moderates towards potential growth
    - - Increase in spare capacity and unemployment
      - A growing gap between potential and actual output
  - - - Growth and Development
        
        GDP per capita
        
        Labour productivity (underpins wages that in turn account for the overwhelming majority of household income)
        
        Employment (a proxy for the breadth of economic oppotunity and ultimately family security)
        
        Healthy-life expectancy (a measure of QOL)
      - Inclusion
        
        Median household income (proxy for the breadth of progress in living standards)
        
        Poverty rate (measures the extent to which progress occurs at the bottom of the income scale)
        
        Income Gini (standard international measure of inequality)
        
        Wealth Gini (analogous measure of wealth concentration)
      - Intergenerational Equity and Sustainability
        Just because there is growth and a gain in living standard does not mean it will not burden the younger and future generations
        
        Adjusted net saving (measures the true rate of saving in an economy after accounting for investments in human capital, depletion of natural resources and damage by pollution)
        
        Public indebtedness as a share of GDP (roughly illustrates scale of borrowing by the current generation against the capacities of future ones)
        
        Dependency ratio or proportion of retirees and youth (< 15 years) to the working-age population (Indicates likely future pressure on a nation's finances
        
        Carbon intensity of economic output, an indicator of country's relative performance on climate change
- - - - Increase in labour force
        Labour force grows, potential output can increase (increase in working age population/increase in participation rate)
        NOTE: If total population increases but large fall in participation rate, size of labour force may not rise
      - Increase in availability of natural resources
        Discovery of new sources of minerals or fishing grounds and expansion of a country's territory. Generally limited scope for generating growth through this because land is fixed. SG is considering better land use through creation of new underground spaces
      - Increase in capital stocks: Investment in physical capital & economic infrastructure
        Increased investment in physical capital leads to increased production of G&S possible. Efficient and reliable infrastructure is also important in supporting commercial activities (transport and communication network, utilities - water, gas, electricity) but costly to produce and should be provided by govt for growth and development
        Level of investment > depreciation amount in order to achieve capital accumulation
        Rate of investment depends on level of savings, expected returns from use of capital in future, rate of interest, govt policy in terms of tax policy, expenditure and direction given
    - - Increase in labour productivity
        Achieved by improvements in education, skills and health of workforce of improvements in tech. Greater output with the same amount of labour implies that a greater level of output in the economy is possible.
      - Increase in land productivity
        Utilise existing land area (terracing or hill slopes) more efficiently to make land suitable for cultivation of rice fields, clearing forest areas and applying fertilisers to turn barren land into arable land
      - Increase in capital efficiency
        Innovative techniques/tech advancement
    - - Discovery of new knowledge (invention of new techniques of production/new products) which permits combining a given amount of resources in new ways so as to result in a larger output. e.g. new techniques applied to existing production processes/improvements in design and performance of machines
        Not limited to factory floor and automation. Can include improvements in management techniques. e.g. manage inventories better so that production and distribution lines are kept flowing with a much lower stock of inventories OR firms may develop and use better personnel management techniques that increase productivity
        Rate of technological progress depends on supply of scientists and engineers and environment for R&D