1. The Nature of Economic Growth A2 Economics

2. Aim: Understand how to generate economic growth Objectives: Explain how governments generate economic growth Describe the causes of economic growth Analyse the advantages and disadvantages of economic growth Evaluate Chinese economic growth Aims and Objectives

3. UK economic growth shrinks. http://www.bbc.co.uk/news/business-16725993 Starter

4. If an economy is operating below its potential output an increase in AD will cause a rise in equilibrium national output (GDP). Generating Economic Growth LRAS AD2 AD1 Price Level Real GDP P1 P2 Y1Y2 Increase in AD leads to an increase in real GDP from Y1 to Y2. AD will increase if one or more of its components rise.

5. Increases in investment and some forms of government spending, for example, on education and R&D will also shift the LRAS curve. Generating Economic Growth LRAS2 Price Level Real GDP Long term economic growth requires this shift. When attempting to boost LRAS must consider supply side policies. (Increase potential GDP) LRAS1

6. May there be any negative effects on an economy if a government were to boost AD alone? Could be inflationary as in 1960s/1970s Generating Economic Growth

7. There must be a mixture of AD and AS policies to avoid large fluctuations and instabilities in the economic cycle. This will create a positive environment for investment and consumer spending to occur. Generating Economic Growth

8. How could each of the following cause economic growth? –Economic stability and macroeconomic policies –Increasing labour activity / participation –Increasing labour productivity –Investing in physical capital –Improving education/training –Enterprise Causes of Economic Growth

9. Ideal environment for business investment Economic Stability & Sound Policies Firms more inclined to produce goods/services and expand their operations. Fluctuations in demand lead to business and consumer uncertainty. Government policies must be focused towards promoting stable economic growth.

10. Growth requires an increasing number of people to be actively employed. Increasing Labour Activity Could lead to increase in wage rates, and inflation. Various factors lead to employment rising such as rise of women in the workforce. Labour supply increases, increasing the potential output of economy. How sustainable is this?

11. Key to achieving high long term growth rates Increasing Labour Productivity UK internationally poor productivity rates. Key to increasing productivity is improvements in both physical and human capital.

12. Allows labour to work with more/better capital equipment Investment in Physical Capital Quantity and quality of capital investment vital. High levels of capital investment will only translate into high economic growth if the equipment uses the best technology and the business uses it efficiently. Government can encourage investment levels by lowering tax on business profits or providing tax breaks for R&D.

13. An educated and skilled workforce will be more productive and help to generate economic growth. Investment in Human Capital Strong economic growth will need an increasingly flexible workforce.

14. On your whiteboards. Decide on one advantage of economic growth & one disadvantage of economic growth. Advantages & Disadvantages of Economic Growth

15. Rise in standards of living. Developed world consumers benefits from a broader range of goods/services. Raises tax revenues without having to raise taxes. These can be redistributed to reduce inequalities or provide merit goods/correct market failure from demerit goods. Allows absolute poverty to be reduced or eradicated. Advantages

16. May lead to volatile growth, which inevitably if not managed will lead to a deep recession. Growth may lead to inflation. May be at the expense of negative externalities due to industrialisation without pollution controls. May lead to greater inequalities in economy. Relative poverty may increase. Disadvantages

17. Is China approaching a growth slowdown?