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ECONOMICS THEME 2 - TOPIC 2.5 -Economic Growth - Coggle Diagram
ECONOMICS THEME 2 - TOPIC 2.5 -Economic Growth
causes of economic growth
for growth to occur there has to be an increase in quality or quantity of one of the four factors of production
Land
- leads to discovery of new resources that can be exploited e.g saudi arabia with oil
Labour
size of workforce
through immigration, changing the working-age + retirement age, etc.. = more goods and services
quality of workforce
through better education + training = more and better goods and services
capital
- new and more machines can increase output
enterprise
- through things such as subsidies the government can encourage the development of more businesses and therefore more goods and services which will increase economic growth
technological progress
- cost of production is lower and it creates new product and therefore new demand
efficiency
- less resources are needed to produce each good, so more goods can be produced
efficiency can be ensured is by having free markets with competition
actual and potential growth
actual growth is the % change in GDP when the economy actually produces more
potential growth is the change in productive potential economy so the PPF or LRAS curve shifts
international trade
a rise in exports increases AD and also prevents an in-balance of payments
as well as this, firms will have to be more efficient in dynamic international markets
output gaps
this is the difference between the actual level of GDP and the estimated long-term value of GDP
a positive output gap is when GDP is higher than estimated
a negative output gap is when it's lower than estimated
^^diagram
trade (business) cycle
this is the period but irregular up and down movements in economic activity
business cycle >
characteristics of a boom
national income is high
economy is working above PPF and there's a positive output gap
consumption and investment are high, aswell as tax revenues and wages
imports high as AD is high
inflationary pressure
characteristics of a recession
high unemployment
low consumption, investment and imports
recession is where GDP falls for two successive quarters
impact of economic growth
on consumers
increase for demand in housing and increase share prices lead to positive wealth effect
improved productive efficiency could lead to lower prices or higher quality goods
possibly increased happiness
however, it could also lead to increased inequalities and inflation
firms
investment increases as they have more money to re-invest
business confidence
new developments e.g tech lead to lower costs
however, firms who sell inferior goods may lose out and markets may disappear e.g with DVDs
government
tax revenues rise so government have more to spend to improve the standard of living
reduce budget deficit
however, economic growth means people expect more from the government
current and future living standards
lower poverty levels and lower unemployment
higher wages
more goods and services
higher living standards
however, may come at cost to the environment