Economic growth
Economic Growth
Economic growth is defined as a long-term expansion of the productive potential of the economy. Sustained economic growth should lead higher real living standards and rising employment. Short term growth is measured by the annual % change in real GDP.
Economic growth is an increase in real national output or an expansion of the economy’s long-run productive potential. It is measured by the percentage change in real GDP or GNP. Inevitably there are fluctuations in the rate of growth from year to year and from quarter to quarter.
A distinction needs to be made between short run growth - resulting from making greater use of available resources to increase output and long-run growth - which comes from expanding the productive potential of the economy through improvements to the supply-side of the economy. Economic fluctuations—the business cycle Variations in growth are part of the business or trade cycle - the real volume of national output does not rise or fall at a uniform rate. Different stages of the economic cycle can be identified:
Recession: A fall in real output - associated with a fall in demand for goods and services and a contraction in employment, investment and profits.
Recovery: A rebound in national output (either from higher consumer demand, government spending, investment or an increase in net exports). The recovery phase can see strong output growth without causing inflation because there is plenty of spare capacity left in the economy.
Boom: Fast growth - where the actual rate of growth exceeds the long run trend rate of growth. The boom can have demand and/or supply-side causes but there is a risk of demand-pull and cost-push inflation emerging. This is because of excess aggregate demand for goods and services and shortages of factor resources.
Slowdown: This phase of the cycle follows on from a cyclical boom. The rate of growth of output slows down relieving some of the demand-pull inflationary pressure. A
Economic growth is defined as a long-term expansion of the productive potential of the economy. Sustained economic growth should lead higher real living standards and rising employment. Short term growth is measured by the annual % change in real GDP.
Economic growth is an increase in real national output or an expansion of the economy’s long-run productive potential. It is measured by the percentage change in real GDP or GNP. Inevitably there are fluctuations in the rate of growth from year to year and from quarter to quarter.
A distinction needs to be made between short run growth - resulting from making greater use of available resources to increase output and long-run growth - which comes from expanding the productive potential of the economy through improvements to the supply-side of the economy. Economic fluctuations—the business cycle Variations in growth are part of the business or trade cycle - the real volume of national output does not rise or fall at a uniform rate. Different stages of the economic cycle can be identified:
Recession: A fall in real output - associated with a fall in demand for goods and services and a contraction in employment, investment and profits.
Recovery: A rebound in national output (either from higher consumer demand, government spending, investment or an increase in net exports). The recovery phase can see strong output growth without causing inflation because there is plenty of spare capacity left in the economy.
Boom: Fast growth - where the actual rate of growth exceeds the long run trend rate of growth. The boom can have demand and/or supply-side causes but there is a risk of demand-pull and cost-push inflation emerging. This is because of excess aggregate demand for goods and services and shortages of factor resources.
Slowdown: This phase of the cycle follows on from a cyclical boom. The rate of growth of output slows down relieving some of the demand-pull inflationary pressure. A