Economic Growth

You are expected to explain/analyze (AO2) and draw (AO4) short- and long-term economic growth using both a PPC and an AD/AS model, explain/analyze (AO2) and calculate (AO4) economic growth, and evaluate/examine (AO3) the consequences of economic growth (SL+HL)

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Economic Growth

Low Unemployment

Low Inflation

(HL) Sustainable Level of Debt

Conflicts Between Objectives

Economic growth is a sustained increase in a country's real GDP over time.

Short-Term Growth (AO2, AO4)

Short-term growth refers to actual growth in the economy.
This can be drawn with either a shift in AD on an AD/AS diagram or a movement of a point on a PPC model.

Long-Term Growth (AO2, AO4)

Long-term growth refers to potential growth in the economy: In the long run, the economy could get to this point.
This can be drawn with either shift in LRAS on an AD/AS diagram or a shift in the curve on a PPC model.

Measurement of Economic Growth (AO2, AO4)

Economic growth can be measured by comparing GDP or GNI values from different times. How these indicators work is explained here in 3.1.
Comparing last year's real GDP with this year's real GDP is done by calculating percentage change:
- - Growth in percent = [(New GDP - Old GDP) / Old GDP]1x 100

Consequences of Economic Growth (AO3)

Impact on living standards: Economic growth generally leads to improvements in living standards. It may decrease poverty levels, increase spending (on both merit and demerit goods), increase cost of living, risk higher inflation, and increase investment. This is why economic growth is desired.
Impact on the environment: Economic growth may create negative externalities on the environment, as market failure may result in issues such as climate change, destruction of the ozone layer, and overfishing. Current consumption of raw materials on earth is not sustainable in the long run.
Impact on income distribution: Economic growth usually creates higher gaps between the wealthy and the poor, both in terms of income and wealth. Governments may generate more tax revenue which they can then spend on helping the poor, but income and wealth gaps tend to increase as economies grow.