--DEFINITION--
ECONOMIC GROWTH is defined as an INCREASE IN REAL GDP that an economy produces over a period of time, the MINIMUM OF TWO CONSECUTIVE QUARTERS (6MTHS+).
An increase in an economy’s productive potential can be shown by an OUTWARD SHIFT in the economy’s production possibility frontier (PPF).
--P3 CALCULATING GROWTH--
Given that REAL GDP PER CAPITA, is the result of a QUOTIENT: REAL GDP / POPULATION, then the relationship between '% changes', is as follows:
[QUOTIENT RULE] If X = Y/Z then %ΔX = %ΔY - %ΔZ
[PRODUCT RULE] If X = Y * Z then %ΔX = %ΔY + %ΔZ
--USING THE AD/AS MODEL--
We have already seen that short-run increases in AD increase output beyond the full-employment level, however, we have also seen that in the LR factor prices will adjust upwards and output will return to its initial full employment level.
This is usually the result of a TEMPORARY IMPROVEMENTS such as a fall in business taxes, or the awarding of subsidies, however, once the output goes beyond the full employment level, the shortages of productive factors such as labour mean wages will be forced upwards and the rightwards shift in SRAS will be countered with a leftward shift, resulting in output returning to its original level.
However, if the SRAS shift comes from PERMANENT IMPROVEMENTS, such as the adoption of more efficient technology or investment in capital that lowers costs now and raises future productivity, or workforce training that boosts efficiency both short- and long-term, then both SRAS and LRAS shift right.
As shown in the last chapter any changes in the QUANTITY and/or QUALITY of the FACTORS OF PRODUCTION will lead to a permanent shift in the productive potential of the economy.
--USING THE PPC MODEL--
--CONSEQUENCES OF GROWTH --
If REAL GDP GROwTH > POPULATION GROWTH, then GDP per capita will RISE, which indicates that there is a GREATER POTENTIAL FOR PEOPLE to INCREASE THEIR CONSUMPTION OF GOODS AND SERVICES, and IMPROVE THEIR STANDARD OF LIVING right?
"Will the increase in incomes be equally shared?"
This relates to how the gains in GDP are distributed. If they only end up in the pockets of a small % of the population, then economic growth has had little impact on the well-being of the average citizen.
"Will the increase in incomes be spent more by households?"
If the metric for measuring improvements in well-being is the greater ability to consume goods and services, then we can only say economic growth has achieved this if a larger portion of the growth has been in household spending ('C').
"Will the increase in incomes be enjoyed equally amongst the sexes?"
The improvements in income and living standards that real growth brings, do not always get shared equally amongst the sexes. In fact, there are numerous indexes that show a clear disparity in favour of males.
"Will the increase in incomes result in more spending on merit goods?"
As output grows, so too does government revenues, as such governments have more funding for merit goods such as schools and hospitals, however, it remains to be seen what they prioritise.
"Will the increase in incomes lead to more philanthropy?"
With higher incomes, comes the possibility of greater charitable donations and philanthropy, but again this is uncertain.
If real GDP growth > population growth, GDP per capita will rise, which indicates that there is a greater potential for people to increase their consumption of goods and services, and improve their standard of living. However, the extent to which economic growth will positively affect the average living standards for all will depend on the following factors
Economic growth implies a greater use of resources.
"Let's grow now, clean up later, and once incomes rise, and the technology cost lowers then we will be for full implementation, ok lah!!!"
This way of thinking, is focused entirely on ECONOMIC GROWTH + GREATER INCOMES IN THE PRESENT, and thus resist any changes that may reduce costs such as the use of greener energy technology, or restricted yields to allow for regeneration.
"Hmmm!!, you do realise that these resources are rivalrous in consumption like the fish in the sea, and the clean air in the sky, right?, Once they are gone you can't get them back, and then what?, your children's children won't have access to them at all!!, you are jeapodising future growth for present growth you are guilty of short-terminism"
"We need a sustainable growth rate which can meet present needs without compromising the ability of future generations to meet their own needs"
If real GDP growth > population growth, GDP per capita will rise, which indicates that there is a greater potential for people to increase their consumption of goods and services, and improve their standard of living. However, the extent to which economic growth will positively affect the average living standards for all will depend on the following factors
GROWTH may lead to GREATER EQUALITY for the following reasons:
The growth was achieved with the use of 'APPROPRIATE TECHNOLOGY', which allowed for integration between labour and capital-intensive production, without causing unemployment.
The growth and resultant TAX REVENUES earned by the government are spent on IMPROVING HUMAN CAPITAL which allows more people to share in the benefits of economic growth.
The growth and subsequent spending were not just are focused on the development of URBAN AREAS (often coastal) but also more RURAL areas.
GROWTH may lead to GREATER INEQUALITY for the following reasons:
The growth was achieved through the use of MORE CAPITAL-INTENSIVE production processes at the expense of labour.
The growth and resultant tax revenues earned by the government are NOT SPENT on improving HUMAN CAPITAL.
The growth and subsequent SPENDING are FOCUSED on the development of URBAN AREAS (often coastal) whilst the rural areas are neglected
The growth was achieved through GREATER TRADE LIBERALISATION and GLOBALISATION, which created both winners and losers, in particular, those formally protected and inefficient domestic industries and their employees suffered from the influx of cheaper substitutes.
The growth was achieved through the PRIVATISATION of industries which left vulnerable groups, formally employed in the public sector, with low human capital and such as those in remote regions isolated.
If we use the 2020 Human Development Report as a gauge of well-being we can see that the top ten ranked countries also have very high per capita GNI figures, implying that larger economic growth leads to better levels of well-being, however...
....the report also highlights how Economic growth per capita doesn't always reflect gains in well being as evidenced by the low HDI ranking of Qatar and Brunei, despite their very high GNI per capita values.
Go to ChatGPT and input the prompt below. once you have your tables copy and paste them onto a canvas template.
Create a table titled 'NEGATIVE CONSEQUENCES of ECONOMIC GROWTH', then for each of the following indicators, HDI RANKINGS, INCOME EQUALITY, LIFE EXPECTANCY, GENDER EQUALITY, ENVIRONMENTAL DAMAGE, and one more indicator of your choice, identify an appropriate measure/index that can be used to measure them. Then identify a country for each indicator that exhibits a RISING GDP PER CAPITA but a WORSENING value/ranking in terms of one of the indicators. For each country, identify the level of change in REAL GDP PER CAPITA over the past decade, then the level of change in the chosen measure/index over the past decade, and finally, provide a possible explanation as to why this may have occurred.
Create a table titled 'POSITIVE CONSEQUENCES of ECONOMIC GROWTH', then for each of the following indicators, HDI RANKINGS, INCOME EQUALITY, LIFE EXPECTANCY, GENDER EQUALITY, ENVIRONMENTAL DAMAGE, and one more indicator of your choice, identify an appropriate measure/index that can be used to measure them. Then identify a country for each indicator that exhibits a RISING GDP PER CAPITA and an IMPROVING value/ranking in terms of one of the indicators. For each country, identify the level of change in REAL GDP PER CAPITA over the past decade, then the level of change in the chosen measure/index over the past decade, and finally, provide a possible explanation as to why this may have occured.