Please enable JavaScript.
Coggle requires JavaScript to display documents.
9- Economic Growth & The Economic Cycle - Coggle Diagram
9- Economic Growth & The Economic Cycle
Types of Growth
Long Run
Growth that occurs when there is an increase in the productive capacity of an economy
A change in the quality or quantity of the factors of production
Capital
Enterprise
Land
Labour
Short Run
Growth that is measured by a change in the real national output (GDP) from year to year
Formula
Y = AD = C + I + G + (X-M)
National Income = Aggregate Demand = Consumption + Investment + Government Spending + Net Exports
Causes of Growth
Short Run Determinants
Supply Side
Falling cost of production
Wages, Rent, Raw Materials
Taxes & Subsidies
Productivity
Increase in the exchange rate
Long Run Determinants
Growth of productivity
Demographic changes
Labour force participation
Pros and Cons of Economic Growth
Pros
Individuals
More Disposable Income
The Economy
Higher Employment
Higher Business Profits
Increased Tax Revenue (Fiscal Revenue)
The Environment
Can invest in environmentally friendly production
Cons
Individuals
Higher Prices
Unequal Income
Under Employed
Welfare Loss (Environment)
The Economy
Current Account Deficit
The Environment
More Pollution
Deforestation
Desertification
Resource Depletion
Dumping (Waste)
Economic Indicators
Real GDP
All of theses allow you to determine which phase of the economic cycle the economy is in
Rate of Inflation
Level of Unemployment
Level of Investment
Causes for the Changes in the Economic Cycle
Shocks!
Demand Side
Increase in Interest Rates
Sudden Drop in Government Spending
Sudden Change in Exchange Rates
Sudden Crash in Housing Market
Banking Crisis (2009/2010)
Sudden Tax
Supply Side
Change in price of Wages or Raw materials
VAT
Exchange Rates
Output Gaps
Positive
When an economy is performing over its full capacity output
Output is an indicator of the difference between the actual output of an economy and the trend rate of growth expressed as a percentage of GDP
Negative
When an economy is performing below is full capacity output