Key Terms:
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Economic Growth
GDP
Learning Objectives
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The candidate will be able to understand and evaluate the
causes of Economic Growth including increases in total
demand and changes in investment, technology and the
quantity and quality of the factors of production
Gross Domestic Product (GDP)
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An increase in real GDP (actual growth) or
potential GDP (potential GDP)
Economic Growth Rate= Real GDP2 –Real GDP1/
Real GDP1 * 100
For e.g. If a country’s GDP rise from $ 100b to $
103b, Economy is experiencing 3% rate of
Economic growth.
Gross Domestic Product (GDP) is the monetary
value of all final goods & services produced within
geographical limits at a country.
Real GDP means the GDP measured at base year
prices or has been adjusted for inflation.
Potential GDP means maximum a country can
produce with its given resources & technology.
Actual Growth
An increase in Real GDP
Movement from inside to on the
PPC
By:
 Employing previously
unemployed resources
 Use of efficient techniques of
production
 Rightward shift of aggregate
demand (AD)
Good Y
Potential growth
An increase in potential GDP
Outward shift of whole PPC
By:
 Increase in quantity resources
 Increase in productivity of
resources
 Rightward shift of long-run
aggregate supply (LRAS)
Good Y
C
A
E
A
D
C
0
0
Good X
B D
Good X
Causes of Potential Economic Growth
A change in the Quantity of
Resources:
Land:
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Discovery of oil, meal or mineral
reserves by active search
Eroded, water-logged land may be made
usable for agriculture purposes
(reclamation of land)
Labor:
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Increase in total population, especially
in the working population.
Change in structure of population
Immigration is greater than emigration
Increased women participation in Jobs
Lower school leaving age
Higher retirement age
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Net Investment
Rate of return on Capital
Interest Rate
Government policies
Technology
Infrastructure
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Capital:
Change in Quanlity (Productivity) of
Resources:
Labor:
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Wage rate
Education & training
Technology
Working conditions
Length of working hours
Fringe benefits/perks/non-monetary
benefits
Bonuses & commissions
Promotional opportunities
Health
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Technology
Skilled Labor
Depreciation, etc.
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Technology
Skilled Labor
Fertility rates, etc.
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Communication
Management Techniques
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Capital:
Land:
Entrepreneurship:
Causes of Actual Economic Growth
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Expansionary fiscal Policy G ,T
 AD
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Actual Growth
Expansionary monetary policy
 MS
AD
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GDP
ir
GDP
C I
Exports Imports
Exchange rate Depreciation
 Exports-cheaper, Imports-Expensive
 (X-M) If D=Elastic
AD
GDP
Benefits of Economic Growth
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Increased GDP
Increased Employment
Increase in Business Confidence
Increase in Health facilities
Increase in Education Facilities
Increase in Literacy rate
Decrease in National Debt
Decrease in Poverty
Decrease in dependency over other
countries
Costs of Economic Growth
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Demand-pull inflation
Incomes Imports
Balance of current account
worsens
Depletion of non-renewable resources causing more
scarcity in future
If growth not balanced, it may lead to greater
disparity between rich & poor
Causes structural Unemployment if there is a shift
from primary to secondary or tertiary sector
Materialism
greed and selfishness
Homework
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Q1. Discuss whether countries with high
population growth have high economic
growth. [6]