growth in real GDP
Types and Cause of economics Growth
- Actual output Growth: Short term growth> brought by demand side factors
PPC model and Classical Model
Economy with deflationary gap> working below its PPC> resources not being used to fullest> underemployment and umemployment. Increase in AD> increase in actual output> closing of deflationary gap> equivalent of movement from a to b in PPC> Economics Growth short term
Happens as a result of economy making better use of its resources, increase Actual Output towards the full employment output but in increasing the potential output.
- Potential output growth: long term growth> supply side policies> increasing full employment putput> productive capacity. Result of increase in quality or quantity, productivity, advances in tech. Outward shift in PPC, increase in LRAS
Growth Rate: GDP in year 2 - GDP in year 1 /GDP in year 1 *100
Consequences
Positive:
- If the economy make supply side improvement alongside the increases in Aggregate demand, the there can be non inflationary growth. GDP will increase without any upward pressure> less unemployment
- Increase in growth> greater GDP> greater GDP per capita> average income increas>standard of living rises
- Higher economic growth> leaps in tech> advanceements> greater investment> higher living standards