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Transcript of Economic Growth
Causes of Economic Growth:
Economic growth means an increase in Real GDP
1. An increase in aggregate demand
2. An increase in aggregate supply (productive capacity)
Can you think of how this can be achieved?
Export - led growth
Constraints on growth:
Including (but not limited to):
Conflict and poor governance
There have been an estimated 150 conflicts since 1945 with 28 million deaths (this is twice the toll of WW1).
Angola has lost 80% of its farmland because of landmines.
Absence of capital markets
The Rwandan Genocide in 1994 cost between 500,000 and 1,000,000 lives.
Population of Rwanda
In India, there are 15 times more phone subscribers than taxpayers.
Worldwide, approximately 2.5 billion people do not have a formal account at a financial institution.
Without access to a worthy bank, consumers cannot take out loans and so cannot invest in any form of capital
Human Capital problems
Sustained growth requires improvements in productivity, research & development and innovation.
Without a skilled labour force, this will prove difficult.
Ageing population and migration
The changing age-structure of a population matters, leading to a fall in the ratio of workers to dependants
In some countries the size of the population is declining as a result of net outward migration
If a nation loses younger workers, this can have a damaging effect on growth
This is a serious problem for Japan
Dependance on primary products for exports
If a country exports primary products (eg crops), then they are very susceptible to changes in weather and other
It may also mean that they run a balance of payments deficit - withdrawal.
Benefits of economic growth
Rise in living standards
Rise in incomes
Greater business confidence - higher profits
More tax revenue - can be spent on improving healthcare for example
Accelerator effect - increased business INVESTMENT
Increased investment in green technology
Costs of economic growth
External costs of growth:
Pollution (noise, air light etc)
Increased consumption of demerit goods
12-15 million hectares of forest are lost each year, the equivalent of 36 football fields per minute.
Increased inequality - the rich tend to benefit more from economic growth - how will a binman benefit?
Real economic growth shifts AS right - downward pressure on inflation
Is it sustainable??
Could cause balance of payments problems - high propensity to import
Does a rise in income mean a rise in standard of living?
Opportunity cost - what have we given up?
Evaluate the costs and benefits of economic growth on the UK economy