C8 ECONOMIC GROWTH Flashcards
CAUSE AND CONSEQUENCES (18 cards)
Gov’s economic aims
MACRO
1. economic growth
- actual + potential + sustainable + inclusive
2. full employment
3. price stability
MICRO
1. equity
2. efficiency
SOL
Actual growth
increase in real national income (output) in an Economy
Potential growth
long run expansion of economy’ s productive potential
Sustainable growth
needs both potential + actual growth
rate of growth that can be maintained without creating other significant economic problems for future generations
inclusive growth
rate of growth that can be sustained over a period of time is board based across economic sectors and creates productive employment opportunities for the majority of the population
Takes income distribution into consideration does not worsen income inequality
indicators of economic growth
- increase in real GDP
- total monetary value of all GS produced within a geographical boundary within a specific time period - increase in GNI
- GDP + factor incomes earned bu residents overseas - factor incomes earned by non-residents in the domestic economy
Increase in AD price adjustment process below full employment
- At existing price level Pe, DD for GS > SS leading to a shortage of GS
- Firms exp unplanned stock depletion. In response, firms will be incentivized and increase production which triggers a [multiplier process] Ye -> Y1 = increase RNO
- Since economy is operating below full employment, idle resources will be utilized to increase production in a multiplied increase in real GDP while leaving [GPL unchanged at Pe as the economy has the capacity to meet higher demands without inflationary pressures]
Increase in AD price adjustment process nearing full employment
- At existing price level Pe, DD > SS leading to a shortage of GS
- Firms exp unplanned stock depletion. In response, firms be incentivized to will increase production which cause an increase in price
[However, due to economy reaching full employment, supply bottlenecks occur to the scarcity of resources]* - To increase production, firms have to turn to inefficient ways of production = increase in COP
- increase in COP will be passed on to consumers and real GDP of an increased in AD will be dampened by the rise in prices. Smaller increase in output Y1 -> Y2
Increase in AD price adjustment process at full employment
- At existing price Pe DD>SS leading to a shortage of GS
- Firms exp unplanned stock deficient. In response, firms will be incentivized to increase production
- Price increase when consumers bid for higher prices however [no chanage in real GDP]
- Real GDP remains unchanged as economy is already operating at full employment and it is not possible to increase production when all resources are fully utilized + no spare capacity in the economy
- [Effect of rise of AD reflected soley on inflationary pressure] [ ↑ AD will only lead to DEMAND PULL INFLATION as GPL ↑ P0->P1]
Depreciation of exchange rate
decrease foreign price of exports increase in domestic price of imports assume PED > 1 lead to more than prop
export revenue increase
import expenditure decrease net X-M increase
Factors affecting ADAS
Consumption expenditure
Investment
Gov expenditure
Export - Import
SRAS - cost of production
LRAS - quality, quantity technology
Benefits of sustainable growth
- Firms encouraged to use cleaner sources of energy
- Reduction of emission rate of greenhouse gas, pollution = slower depletion of non renewable resources
- improve health, quality and productivity can be maintained = SOL improves
- availability of resources can be used for FOP in the future to increase LRAS
Benefits of inclusive growth
if not inclusive will lead to structural unemployment
- Inclusive and creates broad base employment for all
- Retrain low income to upskill to reduce poverty. Help raise income to increase purchasing power to consume more GS = increase SOL
- Social inequalities can cause social unrest which makes country unattractive for investors to come (decrease in I, decrease AD no economic growth)
- Better utilization of resources allows population to gainfully employed = less wastage, greater allocative efficiency, improve productive capacity, increase actual potential growth
GOOD
positive consequences of economic growth
remember the aims of SOL, EEP, BEE
- Higher SOL
↑real GDP = ↑ income = ↑disposable income = ↑ purchasing power = ↑consumption of GS= ↑ wants satisfied = ↑SOL
- Higher non material SOL
↑real GDP = ↑ national income= ↑ disposable income = ↑ access to better healthcare facilities and education services = ↑ mortality, ↑ literacy rate, ↑ life expectancy
↑ real GDP = gov ↑ tax revenue collected from ↑ national income = ↑ funding to upgrade healthcare facilities, education standards. ↑ employ measure to reduce pollution, QOL improves
- ↑ employment
↑ GS produced since labour is [derived demand] from DD of GS = ↑ employment .
High + stable economy attract investors confidence = ↑ FDI entering = ↑ job opportunities - Enhances further potential and economic growth
↑national income = ↑ higher savings investments = ↑ banks lend more to firms for investment =↑ I - Attract FDI capital inflows
↑ investors confidence attract more FDI + capital inflow
Long run, X produces by foreign firms ↑ = ↑ X-M
BAD
negative consequence of economic growth
- ↓ Price stability
EXCESSIVE CAN LEAD TO DEMAND PULL INFLATION (↓AD) . When ↑ AD mismatch ↑ AS. ↑ AD = shortage of GS = upward pressure on GPL. ↑ in GPL X= ↑ in real output since economy is near full em or at full em - ↓ Non material SOL
Pollution, waste levels - ↑ structural UNEM
- Changes in production and (Goods produced and techniques + skills required)
- Excessive growth = ↑ rapid rate of change in production techniques = capital obsolete = skills no longer relevant in in jobs, replaced by machines = unable find new jobs = forced to take low -paid, unskilled work - Slower economic growth in future
- non-renewable resources run out faster in the future = limit firms production = ↓ productive capacity = rate of increase in QTY QLTY of resources impeded = endanger future sustainable growth.
Causes of negative of economic growth
Recessions => ↓ in country’s real GDP/RNO/RNI (2 consecutive quarters where GDP is -ve)
- ↓ AD
- At Pe AS>AD = surplus which drives prices of GS down and firms to earn less profits = ↓ production.
- ↓ Production = multiplied ↓ in RNO/RNI. GDP ↓ Y0->Y1 - ↓ SRAS = output/man ↓ = ↓ labour productivity = leftwards
- At Pe, AS>AD = surplus which drives prices of GS down and firms to earn less profits = ↓ production
- ↓ Production = multiplied ↓ RNO/RNI
Causes of slow economic growth
RNO/RNI ↑ but at a slow rate
- Slow ↑ AD
- Poor economic outlook - Slow ↑ SRAS + ↑LRAS
- Capital depreciation = ↓ productivity
- Lack of skilled Labour
- ↓ technological improvement
Consequences
1. SOL worsen if economic growth cannot keep up with the pop growth
2. SOL worsen if economic growth cannot keep up with other country improvement in SOL
OKOK
consequences of slow/negative economic growth
- Low Material + non - material SOL
- -ve economic growth = ↓ real GDP = ↓ RNO/RNI = ↓ disposable income = ↓ satisfy wants = ↓ SOL
- ↓ RNI = gov collect ↓ tax revenue = ↓ spent on healthcare facilities + education services = ↓ funding for gov to improve SOL = ↓ affordability of health care - ↓ Level of employment + prolong economic downtown
- -ve economic growth = ↑ DD deficient UNEM.
- Output ↓ = firms produce ↓ to minimize loss = em ↓
- -ve economic growth = ↓ C / ↓I = ↓ capital stock = ↓ Potential growth due to ↓ FOP - Worsen inequity
- ↓ income / ↓ firms revenue = ↓ gov tax revenue = ↓ gov ability to implement policies to reduce inequity. ↓ income fam receive less grants support financially = ↑ inequity = harder to secure productive employment in future - ↓ Capital inflow
- -ve economic growth = ↓ expected rate of return form investment = ↓ C = outflow of FDI as they look for other markets = ↓ level of capital stocks = ↓ potential growth
