Causes & Consequences of Growth | Economics for GCSE/IGCSE - Year 11 PDF Download

Causes of Economic Growth

Growth Caused by a Change in Total Demand

Actual economic growth refers to a rise in the volume of goods and services produced within an economy over a specific period.

• Typically quantified by the percentage alteration in real Gross Domestic Product (GDP).
• Any elevation in the components of real GDP—be it consumption, investment, government spending, or net exports—will result in a surge in total demand.

Diagram Explanation:

• Previously untapped resources or factors of production are now being utilized.
• This shift is exemplified by a movement from a position within the production possibilities curve (PPC), like Point E, towards the boundary of the PPC.
• At any given moment, actual economic growth might fall short of the potential growth that the economy could achieve.

Growth Caused by a Change in the Quantity/Quality of Factors of Production

• Potential growth signifies the expansion in the productive capacity of an economy.
• This expansion occurs through increases in the quantity or quality of the factors of production available within an economy.
  • For instance, improving the quality of a factor of production, such as through training and education, enhances workforce productivity, consequently broadening production possibilities.
  • Similarly, augmenting the quantity of a factor of production, like through changes in migration policies to allow more foreign workers, can expand production possibilities.
• Enhancing the quality of capital is achieved by investing in new capital machinery.
• Adoption of new technology leads to increased productivity, representing an advancement in production capabilities.

Diagram Explanation:

• Economic growth signifies an expansion in the productive capacity of an economy, illustrated by an outward shift of the entire curve denoted by 'A'.
• This shift enables the production of more consumer goods and capital goods utilizing all available resources.

The Consequences of Economic Growth

• Economic growth plays a pivotal role in enhancing living standards within a society.
• There is ongoing debate regarding the downsides of economic growth, leading to questions about its continued prioritization in macroeconomics. Alternatively, there is a growing advocacy for emphasizing overall societal welfare.

A Table Summarising the Benefits & Costs of Economic Growth