1.1 The Economic Cycle and Economic Growth

Unit 4 part 1

• The economic cycle and economic growth

• Use of national income data to assess living standards

• Inflation and deflation• Unemployment

Objectives

• Quick revision of Economic growth

• Understand how to generate economic growth

• Be able to explain the causes of economic growth

• Examine the advantages and disadvantages of economic growth

What are?

• Economic growthIncreases in national output over time, often measured by changes in GDP• Potential economic growthGrowth in the productive potential of an economy• Actual economic growthThe extent to which economies grow to their potential

Objectives

• Quick revision of Economic growth

• Understand how to generate economic growth

• Be able to explain the causes of economic growth

• Examine the advantages and disadvantages of economic growth

How can you generate economic growth?

Over to you 1

• Using an AS/AD diagram, illustrate the following:

1. An economy experiencing potential growth, but not actual growth.

2. A government attempting to generate rapid short-term economic growth by stimulating AD

3. An economy experiencing non-inflationary, actual economic growth.

An economy experiencing potential growth, but not actual growth.

The potential is LRAS2, but economy has not actually moved there yet. How could

this happen?

A government attempting to generate rapid short-term economic growth by stimulating AD

What happens as the economy moves onto the vertical LRAS?

An economy experiencing non-inflationary, actual economic growth.

Move from AD1 to AD2 and then to AD3? Or not?

Objectives

• Quick revision of Economic growth

• Understand how to generate economic growth

• Be able to explain the causes of economic growth

• Examine the advantages and disadvantages of economic growth

Be able to explain the causes of economic growth

The fourth industrial revolution?

Objectives

• Quick revision of Economic growth

• Understand how to generate economic growth

• Be able to explain the causes of economic growth

• Examine the advantages and disadvantages of economic growth

Advantages of Economic Growth

• Rise in material standard of living of households = more people can enjoy more goods and services

• Difference between developing and developed world?

• Reduce or eliminate absolute poverty• More tax revenue for same tax rates means more

finance for important public and merit goods and to reduce negative effects on the environment

• Greater political power. Shift from USA to China?

Disadvantages of Economic Growth

• “Jam today vs Jam tomorrow” => economy at full employment will have to stop producing consumer goods to invest in capital goods

• Negative externalities => pollution• Increased inequalities as gap between

rich and poor increases• Threat to traditional ways of life => does

greater prosperity = greater happiness? Maslow…

Objectives

• Quick revision of Economic growth

• Understand how to generate economic growth

• Be able to explain the causes of economic growth

• Examine the advantages and disadvantages of economic growth