Economic growth
Economic growth is desirable for many reasons, one of them being that recessions are unfavourable
Types of recessions
Economic : Sustained period of negative economic growth
Technical : two consecutive quarters of negative growth
recessions lead to fall in economic output
impacts of recession
loss of output and welfare
increased unemployment
strain on government budgets
Negative outlook and pessimism
Deflationary spiral
defined as an increased in real national output of a country over a period of time
sustainable growth: rate of growth that can be maintained in the long term without creating other significant economic problems
Types of economic growth
Actual
Potential
In SR; determined by growth in AD and/or increase in SRAS; signified by a movement of a point from an inner part of a PPC outwards
Determined by growth in PPC/ LRAS; potential economic growth is exactly as it sounds. Some issues relating to it include determining the best way to figure out how to measure it.
Grow rates
Actual > potential
Potential > Actual
underemployment is reduced; idle resources and unemployment reduced
inflationary pressures build up
excess labour demand > real wage growth outstripping productivity growth.
Unit labour cost ^
GDP growth moderates towards potential growth
^ in spare capacity and unemployment
growing gap between potential and actual output
Inclusive; economic growth that is spread evenly throughout everyone in the country
creates opportunity for all segments of the population and distributes the dividends of increased prosperity
How is inclusive development measured?
Growth and development
inclusion
Intergenerational Equity and Sustainability
Economic development
economic growth accompanied by qualitative improvement in the standard of living
Measured by percentage change in real GDP; Real GDP = nominal GDP (of year z)/ GDP deflator * 100
Can also be measured by
Economic indicators
Non-economic indicators
Such as
Physical Quality of Life Index
Measure of Economic Welfare
What is it caused by?
supply side factors
demand side factors
structural factors
external factors
Increased in qty of factors of production
Increased quality of factors of production
Increase in level of technology
Policies to encourage desirable rates of economic growth
Fiscal policy
Monetary policy
AS side policies
Impacts of economic growth
benefits
Increased levels of consumption leading to increased standards of living
Helps avoid other macroeconomic problems
enables easier redistribution of incomes
society can afford to care more for the environment
Costs
current opportunity cost of growth
environmental costs and depletion of non-renewable resources
Effects on income distribution
effects on employment
social effects
impact on balance of payment