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The meaning of economic growth:
An increase in real GDP expressed as a percentage.
Calculate this (HL)
caused by factors including a reduction in unemployment and increases in productive efficiency, leading to a movement of a point inside the PPC to a point closer to the PPC. (Copy this). It is the equivalent of a shift in the AD curve to get rid of a deflationary gap.
Describe, using a PPC diagram, economic growth as an increase in production possibilities caused by factors including increases in the quantity and quality of resources, leading to outward PPC shifts.
shifts in the production possibility frontier
The production possibility frontier will shift outwards when
There are improvements in productivity and efficiency from the available factor resources
There is an increase in productive potential following an improvement in technology. This may be specific to one industry or (more likely) the technological break-through may have advantages for many industries in an economy. The diffusion of new technology is sometimes called a "positive spill-over effect"
More factor resources are exploited (perhaps due to an increase in the available workforce or a rise in the amount of capital equipment available for businesses to use). New natural materials (land) may also become available for the production process.
IMPROVED TECHNOLOGY IN THE COMPUTER INDUSTRY
An outward shift of the frontier shown in the (diagram above) implies that the opportunity cost of production has fallen. The improvement in technology is assumed to affect the notebook computer producers only.
AN INCREASE IN TOTAL FACTOR PRODUCTIVITY IN THE ECONOMY AS A WHOLE.
This is the equivalence of a shift to the right in the Classical LRAS curve
If whole economy productivity improves the production possibility for all goods and services increases. This implies an expansion in the potential output for the economy and clearly has important implications for long-run living standards. If more output can be generated from the same resources, the economy is better able to meet the needs and wants of consumers. Real output per head should rise over time.
Productivity growth is vital in determining the long run average growth rate for most economies.
Describe, using an LRAS diagram, economic growth as an increase in potential output caused by factors including increases in the quantity and quality of resources, leading to a rightward shift of the LRAS curve.
Explain the importance of investment for economic growth, referring to investment in physical capital, human capital and natural capital.
Explain the importance of improved productivity for economic growth. We are mainly talking about labour productivity here- which is a function of training but also effective management. Also technology is important.
Discuss the possible consequences of economic growth, including the possible impacts on living standards, unemployment, inflation, the distribution of income, the current account of the balance of payments, and sustainability.
Student Task: Read the article below and in pairs debate the positive and negative effects of economic growth:
1.5 Why do we need economic growth.docPage updated
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