Economic growth
Recession
Technical (2 consecutive quarters of -ve economic growth
Economic (sustained period of -ve economic growth
Problems
Loss of output & welfare, unemployment, ↓govt budget, ↓confidence, possible deflationary spiral
increase in RNY of a country over a period of time
Actual
Sustained growth
rate of growth that can be maintained in the LR without creating significant economic problems. implies +ve and stable growth rate over an extended period of time
Potential
is
in the SR, determined by
% annual ↑ in national output/ equil NY
is
rate of growth of potential output; % annual ↑ in capacity of economy to produce
in the LR, determined by
Supply-side factors
↑AD and/or ↑SRAS
potential>actual
actual>potential
- idle resources and unemployment ↑
- inflationary pressure build up, through higher wages
- excess labour demand leads to real wage growth> productivity growth
- unit labour costs↑, erosion of export competitiveness
- GDP growth moderates towards potential growth
- ↑ in spare capacity, unemployment
- growing gap between potential and actual output
Inclusive
is
Economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society
Indicators
- Growth and Development (GDP per capita, labour productivity)
- Inclusion (Gini, median household income, poverty rate)
- Intergenerational Equity and Sustainability (net saving, dependency ratio)
Economic Development
is
Economic growth accompanied by the qualitative improvement in the SoL, involves changes in the economic, social, and political structure of the country
Measurement
Economic indicator (real gdp per capita, etc)
Non-economic indicator (PQLI, etc)
Cause
Supply-side factors
↑ Level of Tech
↑ Qty of FoP
↑ capital stock: I in physical capital and economic infrastructure
↑ availability of natural resources
↑ Labour force
↑ Quality of FoP
↑ Labour productivity
↑ Land productivity
↑ Capital Efficiency
Supply of scientists and engineers
Environment for research and development
Demand side factors
affects actual growth in SR
Indirectly affects productive capacity in LR
Structural Factors
favourable cultural, social, political environment promotes growth
External factors
Rate of growth of trading partners
Policies to encourage desirable
rates of economic growth
FIscal policy
Monetary Policy
Encourage investment
Encourage tech improvements
Influence i/r and money supply to encourage I in
capital goods and tech, exchange rate to affect BoT
AS side policies
- Development of human capital through education and training and retaining of skills
- development of infrastructure
- development of R&D resulting in tech progress
Benefits
Costs
↑ consumption -> ↑SoL
avoids other macroeconomic problems
enables easier redistribution of incomes
can afforfd to care more for environment
Current opportunity cost of growth
Environmental costs and depletion of non-renewable resources
effects on income redistribution
effects on employment
social effects
impact on balance of payments