Economic Growth
Economic Growth: An increase in Real GDP in an economy in a year caused
by an increase in AD or and increase in LRAS
Short Run Growth:
An increase in AD = Short Run Growth - Using Spare Capacity to increase Real
GDP.
Shift of Ad to right = Short Run Growth
On PPF:
Axis: Must have Goods and Services
A Negative Output Gap = X = Inside Productive Potential
MOvement from inside PPF towards PPF = Y
, On AD/LRAS Diagram:
Shift of AD to right
Closing Negative output gap as moving towards full capacity (Yfe)
Factors Causing Short Run Growth:
ANYTHING that SHIFTS AD - C+I+G+(X-M)
1) Lower Interest Rates
Cheaper for consumers/business to borrow - C+I increase
Cause Weaker Exchange Rate - (X-M) increase
2) Lower Income/Corporation Tax
More disposable income for households - spending rises - C rises
3) HIgher consumer/Business Confidence
Increase C+I
4) HIgher Government Spending
Increase G
5) Weaker Exchange Rate
Boost X-M
Economic Growth: An increase in Real GDP in an economy in a year caused
by an increase in AD or and increase in LRAS
Short Run Growth:
An increase in AD = Short Run Growth - Using Spare Capacity to increase Real
GDP.
Shift of Ad to right = Short Run Growth
On PPF:
Axis: Must have Goods and Services
A Negative Output Gap = X = Inside Productive Potential
MOvement from inside PPF towards PPF = Y
, On AD/LRAS Diagram:
Shift of AD to right
Closing Negative output gap as moving towards full capacity (Yfe)
Factors Causing Short Run Growth:
ANYTHING that SHIFTS AD - C+I+G+(X-M)
1) Lower Interest Rates
Cheaper for consumers/business to borrow - C+I increase
Cause Weaker Exchange Rate - (X-M) increase
2) Lower Income/Corporation Tax
More disposable income for households - spending rises - C rises
3) HIgher consumer/Business Confidence
Increase C+I
4) HIgher Government Spending
Increase G
5) Weaker Exchange Rate
Boost X-M
