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Economic Growth, rapid rise is not sufficient to ensure continuing high…
Economic Growth
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Actual growth
- rate of growth in actual or real output
- eg. published statistics on GDP growth rates
- in the short-run, determined by growth in AD/increase in SRAS
Potential growth
- rate of growth of potential output (or full-employment output
- i.e speed at which the economy could grow;percentage annual increase in capacity of the economy to produce
- determined by the increase in LRAS (productive capacity)
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- the faster the rise in AD, the higher the SR rate of actual growth (due to shortages, stimulating firms to increase output to counter slack in economy) : :
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- increase in SRAS results in excess output, GPL falls, PP increases -> increase spending, increase in AD, increase in equilibrium national output
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indicates a rate of growth that can be maintained without creating other significant economic problems such as depleted resources and environmental problems, particularly for future generations. implies a positive and stable growth rate over an extended period of time
indicates a rate of growth that is sustained over a period of time, is broad-based across economic sectors, and create productive employment opportunities for the majority of the country's population.
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concentrates on variables that are quantifiable, eg. measures of output, capital formation, export performance, factor productivity, GDP
growth in labour = increase in potential output (occurs when there is an increase in working age population/increase in participation rate)
if a rise in total population is accompanied with a large fall in participation rate, size of labour force may not rise
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physical capital are vital in production processes of firms, an increase in physical capital = possible production of more goods and services
must be positive net investment, level of investment > depreciation amount
refers to output per hour of work per worker, increase in labour productivity = greater level of output in the economy
may rise due to improvements in education, skills, health, or technology
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discovery of new knowledge to result in larger output with the same input, improvements to design & performances of machine
w/o increases in AD, actual output may not rise as fast as rise in productive capacity, higher production potential cannot be actualised
favourable cultural, social & political environment can affect growth
international trade, if trading partners have slow growth, limits the country's opportunities for investment and growth
growth in productive potential helps to meet aspirations and avoids other macroeconomic problems that may arise
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when incomes increase, tax received by govt increases even if the rate is the same, govt can help the poor
as affluence rises, people become less preoccupied with their own private consumption and more concerned to live in a clean environment
to achieve faster growth, firms will need to invest more and acquire capital goods, resources must be diverted away from producing consumer goods towards producing capital goods. opportunity cost of higher growth in the future is less consumption as more capital goods are produced at expense of consumption goods
richer society is also more likely to do more damage to the environment, the higher the level of consumption, the greater the level of pollution
wages of those in expanding industries may find their wages increasing by a larger proportion as compared to wages of those in declining industries
the more rapid the rate of growth, the more rapid the rate of change in production techniques; people may find that their skills are no longer relevant/replaced by machinery, unemployment increased or forced to take low-paid unskilled work
increasing stress and anxiety levels, excessive pursuit of material growth can lead to more selfish and less caring society
may cause worsening of net exports if investment undertaken to achieve growth involves purchasing imported machinery; furthermore, rising incomes due to economic growth may lead to increased purchases by households on imported consumer goods