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Economic growth /Economic development/ economic cycle - Coggle Diagram
Economic growth /Economic development/ economic cycle
Definition: Economic growth is an increase in the real GDP / NY /NO of the economy.
Economic growth rate shows the change in the rate percentage of economic growth
What is trend growth?
Trend growth refers to the smooth path of long run national output
Measuring the trend rate of growth requires a long-run series of data perhaps of 20-30 years or more in order to calculate average growth rates from peak to peak across different economic cycles
What determines the rate of economic growth?
Every country is different, each factor will vary in importance for a country at a given point in time
Remember too that in our inter-connected globalising world, growth does not happen in isolation. Events in one country and region can have a significant effect on growth prospects in another
What are some of the main Threats / Challenges to Economic Growth
Changes in the real exchange rate affecting competitiveness
Cyclical fluctuations in national output and external trade
Financial instability e.g. unsustainable credit boom and fall in savings
Volatility in world prices for essential imports and key exports
Political instability / military conflicts
Natural disasters and other external supply shocks
Unexpected breakthroughs in the state of technology
Growth Drivers
Here are some of the main determinants of economic growth – they apply for both developing and developed countries although the relative weighting that we might attach to each will depend on the individual circumstances facing each country or region.
Growth in physical capital stock - leading to a rise in capital per employee (capital deepening)
Growth in the size of the active labour force available for production
Growth in the quality of labour (human capital)
Technological progress and innovation driving productivity improvements i.e. higher GDP per hour worked
Institutions - including maintaining the rule of law, stable demcracy, macro-economic stability
Rising demand for goods and services - either led by domestic demand or from external trade
economic growth using ppf
short run economic growth : the annual percentage change in real national output
change in ad
change in sras
which is caused by a change in the cost of production
Long run economic growth
Long term growth is shown by the increase in trend or potential gdp and this is illustrated by an outward shift in a countrys lras
One way to achieve long run economic growth which is changes in the quality or quantity of the factors of production
formula:Economic growth is an increase in the real GDP / NY /NO of the economy.
Economic cycle
he economic cycle is the fluctuation of the economy between periods of expansion (growth) and contraction (recession).
The four stages of the economic cycle are also referred to as the business cycle. These four stages are expansion, peak, contraction, and trough.
Slowdown
A slowdown occurs when the rate of growth decelerates – but national output is still rising
If the economy grows without falling into recession, this is called a soft-landing
Recession
A recession means a fall in the level of real national output i.e. a period when growth is negative, leading to a contraction in employment, incomes and profits.
A simple definition:
A fall in real GDP for two consecutive quarters i.e. six months
A more detailed definition:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and retail sales.
Boom
A boom occurs when real national output is rising at a rate faster than the trend rate of growth. Some of the characteristics of a boom include:
A fast growth of consumption helped by rising real incomes, strong confidence and a surge in house prices and share prices
A pick up in demand for capital goods as businesses invest in extra capacity to meet strong demand and to make higher profits
More jobs created and falling unemployment and higher real wages
High demand for imports which may cause the economy to run a larger trade deficit because it cannot supply all of the goods and services that consumers are buying
Government tax revenues will be rising as people earn and spend more and companies are making larger profits – this gives the government money to increase spending in areas such as education, the environment, health and transport
An increase in inflationary pressures if the economy overheats and has a positive output gap
Recovery
This occurs when real GDP picks up from the trough reached at the low point of the recession.
The state of business confidence plays a key role here. Any recovery might be subdued if businesses anticipate that it will be temporary or weak in scale.
A recovery might follow a deliberate attempt to stimulate demand. In the UK we have seen
Cuts in interest rates – the policy interest rate fell to 0.5% in the Autumn of 2008 and they have stayed at this low level since then
A rise in government borrowing
A policy of quantitative easing (QE) by the Bank of England to pump more money into the banking system in a bid to increase the supply of loans
link to www.google.com
link to www.google.com
Negative output gap : Where the potential output is greater than the actual output
Positive output gap : Where the actual output is greater than the potential output
Economic development
Indicators=. 1. standard of living (gdp per capita) 2. health 3. level of education.
Alternative measures of economic development 1. inequality adjusted hdi 2. the multidimensional poverty index 3. the genuine progress indicator. whihc includes ecoomic, environmental and social. 4. the human capital index the world bank
Human capital index: refers to skills experience attitudes adn aptitude of the human input into production. Investment in education, training is needed to devlop people in the country for sustained growth.
The differences between economic growth and economic development
assumptions :
More economic growth should mean more economic development as more money to improve the health, living standards
negative assumptions
2 more items...
and life expectancy.
Using the trickle down effect, it should work.
Economic development is an increase in human well being. - increase in the economic and social well being of people in an economy
it represents the welfare of people in the economy
it shows the improvement in quality of life of people in an economy
it is a normative concept
