Economic Growth (Copy)

4.6 Economic Growth

4.6.1 Definition of Economic Growth

• Economic Growth: Increase in the output of goods and services in an economy over time.
• Measured by the increase in real GDP (adjusted for inflation).
• GDP per head (per capita): GDP ÷ total population → measures average income/standard of living.

4.6.2 Measurement of Economic Growth

• Real GDP: Value of output adjusted for inflation → shows actual growth.
• GDP per capita: Growth divided across population → better for comparing living standards.
• Growth rate = % change in real GDP over time.

4.6.3 Causes and Consequences of Recession

• Recession: Two consecutive quarters of negative GDP growth.
• Moves the economy inside its PPC (under-utilisation of resources).

Causes:

• Fall in consumer spending.
• Decline in investment.
• High interest rates.
• Fall in exports.
• External shocks (oil prices, global slowdown).

Consequences:

• Higher unemployment.
• Falling incomes and profits.
• Reduced investment.
• Lower government revenue, higher spending (benefits).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

4.6.4 Causes of Economic Growth

• Investment in capital (machinery, infrastructure).
• Technological progress (automation, digitalisation).
• Improved labour (education, training, skills).
• Natural resources (oil, minerals, fertile land).
• Entrepreneurship and innovation.
• Government policies (stability, incentives).

Growth shifts PPC outward (increase in productive capacity).

4.6.5 Consequences of Economic Growth

Benefits:

• Higher employment and incomes.
• Better living standards.
• Increased government revenue (more taxes).
• More investment in public services (health, education).

Costs:

• Income inequality may rise.
• Environmental damage (pollution, resource depletion).
• Over-reliance on non-renewable resources.
• Inflation risk if demand > supply.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course

4.6.6 Policies to Promote Economic Growth

• Fiscal Policy:
  • More government spending (infrastructure, health, education).
  • Lower taxes to boost investment and consumption.
• Monetary Policy:
  • Lower interest rates → encourage borrowing and spending.
• Supply-Side Policies:
  • Improve education/training.
  • Deregulation and privatisation.
  • Tax incentives for businesses.
• Trade Policies:
  • Promote exports (subsidies, trade agreements).
  • Attract Foreign Direct Investment (FDI).

Quick Exam Examples

• China: Growth driven by investment in infrastructure and manufacturing exports.
• Singapore: Growth via education and technology.
• 2008 Global Financial Crisis: Recession due to fall in demand and investment.

Memory Hooks

• Growth = Outward PPC shift
• Recession = Inside PPC movement
• Causes of Growth = I-T-L-N-E-G
  • Investment, Technology, Labour, Natural resources, Entrepreneurship, Government policy

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Economics Full Scale Course