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Chapter 10: Economic Growth, Actual Growth, Potential Growth - Coggle…
Chapter 10: Economic Growth
Goal: Inclusive Growth
Takes income distribution into consideration
Fair distributions of material and non-material SOL
Economic Development
More than economic growth
An inclusive growth where there is an overall improvement in SOL for the population as a whole
Causes
Increase in the level of technology (Increase both SRAS and LRAS)
Increases in demand
Firms have more incentive to invest (increase LRAS)
Increase in quantity of FOP
Increase in labour force
Increase in availability of natural resources
Increase in capital stock due to investment
Increase in quality of FOP
Increase in labour productivity
Increase in capital efficiency
Increase in land productivity
Structural Factors
Enforced property rights
Benefits
Potential growth helps to avoid inflation and other problems
Easier redistribution of incomes
Higher SOL due to higher consumption
Society can afford to care more about the environment
Costs
Producing more capital goods (investment) instead
of consumption goods in the short run
Environmental costs and depletion
of non-renewable resources
Income inequality
Rapid changes in production techniques
lead to structural unemployment
Lower non-material SOL due to stress
(Negative impact on Balance of Payments)
Increased consumption of imported consumer/capita goods
Actual Growth
Increase in AD/ Increase in SRAS
Growth in real output
Movement within the PPF curve
Potential Growth
Growth in potential output
Outward shift of PPF curve
Increase in LRAS (Productive capacity)