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chapter 10: economic growth - Coggle Diagram
chapter 10: economic growth
definitions
economic growth
:increase in real national output of country over period of time
sustainable EG
: rate of growth that can be maintained in the long term without creating other significant economic problems particularly for future generations (basically sustained economic growth without impact on environment)
economic recession
: sustained period of negative EG (technical recession: 2 consecutive quarters of -ve EG)
sustained EG
: actual + potential growth
inclusive growth
: EG that creates opportunity for all segments of populations and distributes dividends of increased prosperity fairly across society
economic development
: EG with qualitative improvement in SOL (involves changes in economic, social and political structure of country) --> requires inclusive growth
actual growth
rapid rise in AD/ increase in SRAS (rise in AD and high growth rate --> economic boom)
problems of recession
loss out output & welfare (loss in real output --> less G&S services available --> lower MSOL)
increased unemployment (fall in output --> less labour needed --> retrenchment)
strain on gov budget (less tax revenue from less personal and corporate income tax + less GST since fall in spending)
negative outlook and poor expectations (lack of confidence --> choose to save more in case of rainy days/ expect fall in income --> fall in AD and economic output)
deflationary spiral (fall in GPL --> expect prices to fall further --> withhold spending --> further fall in output and GPL)
inclusive growth
enables people to fulfil their won potential
measured by: growth & development (EG), inclusion (social inclusion) , intergenerational equity and sustainability (younger and future generations not burdened)
causes
supply side factors - improving QQT
Q: size of labour force, availability of natural resources, capital stock; investment in physical capital and economic infrastructure
Q: labour productivity, land productivity, capital efficiency
T: new technology or products to increase productivity
demand side factors --> to increase AD through CIGXM
structural factors
favourable cultural, social and political environment for incentives to work, fluidity in mobility based on performance and political stability respectively
external e.g. growth of trading partners
policies
fiscal policy -- tax concessions/ gov expenditure to encourage investment or tech improvements
monetary policy - encourage investment spending
AS supply side policy
consequences
benefits
1 increased C = higher SOL
2 avoids other macroeconomic problems e.g. unemployment by ensuring resources are fully utilised
3 easier redistribution of incomes (rich will pay more income tax --> spent on programmes to alleviate poverty)
society can afford to care more for environment (less preoccupied with own private consumption, more concerned to live in clean environment)
costs
current opportunity cost of growth --> requires investment and resources diverted away from producing consumer goods
environmental costs --> likely higher pollution with higher real output
income distribution --> as economy growths, likely income gap too due to expanding vs declining industries
increase in structural unemployments or underemployment due to skills not being relevant as economy changes
social effects --> increase in stress levels and anxiety levels + pursuit of material growth (more selfish and less caring society)
possible BOP current account deficit
macroeconomic aim: high and sustainable economic growth