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CHAPTER 10 | ECONOMIC GROWTH - Coggle Diagram
CHAPTER 10 | ECONOMIC GROWTH
recession
definitions
economic
a sustained period of negative economic growth
technical
two consecutive quarters of negative growth
problems
loss of output and welfare
increased unemployment (chapter 9 yay)
strain on government budgets
negative outlook and pessimism
potential cause of deflationary spiral (chapter 7 yay)
definitions
economic
an increase in the real national output of a country over a period of time
actual
percentage annual increase in national output actually produced or equilibrium national income; growth in AD = C + I + G + X-M
creates a cycle of economic booms and recessions
known as the business cycle
which fun fact can also be caused by changes in SRAS, or more likely simultaneous changes in both
but without expansion in productive capacity, spare capacity will eventually be exhausted, requiring
potential
represented by
changes in LRAS
changes in PPF
due to
changes in quality, quantity of resources and technology (elaboration's somewhere on this page)
what if
actual > potential
reduction in amount of idle resource and unemployment
inflationary pressures increase, mainly through higher wages
excess labor demand leads to real wage growth exceeding productivity growth
unit labor costs increase, eroding export competitiveness
GDP growth moderates towards potential growth (???what)
potential > actual
increase in spare capacity and unemployment
growing gap between potential and actual output
sustainable
a rate of growth that can be maintained in the long term without creating other significant economic issues; a positive and stable growth rate over an extended period of time
inclusive
economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society (think the goals of communism though the mechanisms of capitalism)
is measured by
world economic forum
growth and development
GDP per capita
labor productivity
employment
healthy-life expectancy
inclusion
median household income
poverty rate
income gini
wealth gini
intergenerational equity and sustainability
adjusted net saving
public indebtedness as a share of GDP
dependency ratio
carbon intensity of economic output
development
economic growth, accompanied by the qualitative improvement in SOL
is measured by
conventional economic indicators
all those mixed indicators from chapter 5
causes
supply-side factors
increase in quantity of factors of production
increase in size of labor force
increase in availability of natural resources
increase in capital stock through investment in physical capital and economic infrastructure
increase in quality of factors of production
increase in labor productivity
increase in land productivity
increase in level of technology
supply of scientists and engineers
suitable environment for research and development (ability and incentive chapter3 yay)
demand-side factors
in the short run, affects actual growth
in the long run, indirectly affects productive capacity through enhancing capital stock
structural factors
favorable cultural, social, and political environment
presence of legal or financial institutions to enable access to profit incentive or capital acquisition
external factors
level of international trade
policy
to encourage desirable economic growth rates
fiscal policy
fiscal incentive/disincentive to affect savings rate, stimulate changes in domestic and foreign investment, research and development
examples
to encourage investment
tax concessions
infrastructure development to better returns on investment
human capital development through education, healthcare
to encourage technological improvements
greater educational facilities to increase access to education
tax incentives to attract foreign talent and technology
domestic R&D tax incentive
government expenditure to offset shortages/surpluses in aggregate demand or to develop economic and social infrastructure
monetary policy
manipulation of interest rate or money supply (go read chapter 8 and apparently 12)
aggregate supply side policy
development of human capital through education, training and reskilling
development of infrastructure
development of R&D for technological progress
consequences
benefits
increased levels of consumption (chapter 5)
avoid other macroeconomic problems through fulfilling aspirations of rising living standards
enables easier redistribution of incomes
greater ability to care for the environment
costs
current opportunity cost of growth means resources are diverted from consumer to capital goods
environmental costs and depletion of non-renewable resources
effect on income distribution
workers in expanding industries have their incomes enhanced at the expense of workers in declining industries
resultant increase in structural unemployment leads to further income inequality
wealthier individuals and corporations possess the capital to benefit the most from economic growth, further accentuating the divide between the rich and poor
effect on employment
changes in production processes potentially leads to structural unemployment
social effects
increases stress and anxiety levels
excessive pursuit of material growth corrupts society
effect on balance of payments
potential deficit, if investment undertaken to achieve growth involves imported capital stock
rising consumer incomes could lead to increase in imported consumer goods
developing countries which rely on FDI experience BOP deficit due to increase in liabilities due to foreign investment, and repatriation of profits to foreign shareholders worsen the BOP account