Economic Growth And Sustainability (Copy)
9.2 Economic Growth and Sustainability
9.2.1 Actual Growth vs Potential Growth in National Output
| Type | Definition | Measurement |
|---|---|---|
| Actual Growth | Increase in real GDP over time. | % change in real GDP. |
| Potential Growth | Increase in productive capacity (shift in LRAS/PPF). | Long-run trend rate of growth. |
- Actual growth fluctuates around potential growth due to short-term economic conditions.
9.2.2 Positive and Negative Output Gaps
| Gap Type | Definition | Effect |
|---|---|---|
| Positive | Actual output > potential output. | Inflationary pressure, overuse of resources. |
| Negative | Actual output < potential output. | Unemployment, spare capacity. |
9.2.3 Business (Trade) Cycle
Phases:
- Boom: High growth, low unemployment, inflation risk.
- Slowdown: Growth rate falls, demand weakens.
- Recession: Two consecutive quarters of negative growth.
- Recovery: Output and demand increase.
Causes:
- Demand shocks (e.g., interest rate changes, global demand changes).
- Supply shocks (e.g., oil price spikes, natural disasters).
- Changes in business/consumer confidence.
Automatic Stabilisers:
- Fiscal mechanisms that reduce fluctuations without new policies.
- Examples: Progressive taxation, unemployment benefits.
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9.2.4 Policies to Promote Economic Growth and Their Effectiveness
| Policy Type | Examples | Evaluation |
|---|---|---|
| Demand-side | Fiscal stimulus, monetary easing | Effective short-term, risk of inflation. |
| Supply-side | Education/training, infrastructure investment, deregulation | Effective long-term, may be costly and slow. |
| Trade policy | Export promotion, reducing trade barriers | Can expand markets but vulnerable to global conditions. |
9.2.5 Inclusive Economic Growth
Definition
- Growth that is broad-based, benefiting all segments of society, reducing poverty and inequality.
Impact on Equity and Equality:
- Can improve access to opportunities.
- May still increase inequality if benefits are unevenly distributed.
Policies to Promote:
- Investment in education and healthcare.
- Social safety nets.
- Progressive taxation.
- Inclusive financial systems.
9.2.6 Sustainable Economic Growth
Definition
- Growth that meets present needs without compromising the ability of future generations to meet their own needs.
Using and Conserving Resources:
- Resource efficiency.
- Renewable energy.
- Recycling and sustainable production.
Impact of Growth on Environment and Climate Change:
- Pollution, deforestation, greenhouse gas emissions.
- Resource depletion.
Policies to Mitigate Environmental Impact:
- Carbon taxes.
- Emission trading schemes.
- Subsidies for green technology.
- Environmental regulation.