Unit -9
9.2-Economic growth and sustainability
Actual economic growth
Actual economic growth occurs when output increases. It is sometimes referred to as short run
economic growth. It can be achieved as the result of greater utilization of existing resources.
production possibility curve (PPC) shows economic growth resulting from greater use of
existing resources. The economy is initially producing at point X. Then the production point
increases to point Y and more goods and services are produced.
Figure : Actual economic growth shown on a PPC
Actual economic growth can also be shown using an AD/AS diagram.Figure shows an increase
in aggregate demand in an economy with spare capacity. The increase in aggregate demand
brings into use previously unemployed resources and output (measured by real GDP) increases
from Y to Y1.
1
, Potential economic growth
For potential economic growth the rise in productive potential must be utilized to lead to higher
output.
potential economic growth is also known as trend growth and is measured by the estimated
annual change in a country’s potential level of national output. Potential growth is driven by
improvements in long run aggregate supply (LRAS)
Potential economic growth shown on a PPC
Potential economic growth shown onAD/AS diagram
For potential economic growth to lead to higher output, the rise in productive potential must be
utilized.
2
9.2-Economic growth and sustainability
Actual economic growth
Actual economic growth occurs when output increases. It is sometimes referred to as short run
economic growth. It can be achieved as the result of greater utilization of existing resources.
production possibility curve (PPC) shows economic growth resulting from greater use of
existing resources. The economy is initially producing at point X. Then the production point
increases to point Y and more goods and services are produced.
Figure : Actual economic growth shown on a PPC
Actual economic growth can also be shown using an AD/AS diagram.Figure shows an increase
in aggregate demand in an economy with spare capacity. The increase in aggregate demand
brings into use previously unemployed resources and output (measured by real GDP) increases
from Y to Y1.
1
, Potential economic growth
For potential economic growth the rise in productive potential must be utilized to lead to higher
output.
potential economic growth is also known as trend growth and is measured by the estimated
annual change in a country’s potential level of national output. Potential growth is driven by
improvements in long run aggregate supply (LRAS)
Potential economic growth shown on a PPC
Potential economic growth shown onAD/AS diagram
For potential economic growth to lead to higher output, the rise in productive potential must be
utilized.
2
