Economic Growth – Causes/Benefits/Costs – AS/A LEVELS/IB/IAL

Economic Growth – Causes/Benefits/Costs – AS/A LEVELS/IB/IAL

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Economic Growth

Economic growth can be measured using measures of Real/Gross Domestic Product (GDP).

It’s an increase in the productive potential of the economy. It can be shown through an increase in the production possibility frontier (PPF) or an increase in aggregate demand (AD) and aggregate supply (AS).

Causes of Economic Growth

Economic Growth can be caused by an increase in the aggregate demand curve (AD) or the aggregate supply curve (AS).

A combination of demand-side (Fiscal & Monetary) and supply-side policies are used to stimulate Economic Growth.

Benefits of Economic Growth

Benefits of Economic growth can be split into benefits for consumers, producers and the government.

  • Consumers – Economic growth can help to increase incomes, living standards and reduce poverty in a country
  • Producers – Firms will experience an increase in demand for their products due to higher consumer confidence and an increase in consumers disposable incomes
  • Governments – They will collect more taxes and pay less benefit payments such as JSA. This is because a large amount of the population will be in employment.

Costs of Economic Growth

  • Damaged Environment – Higher economic growth usually means more firms producing and polluting. Economic growth is associated with increased levels of CO2.
  • Increased Income inequality – Economic growth leads to the gap between rich and poor increasing. Those at the top of the chain (CEO’s, Managers, shareholders etc.) seem to reap more rewards then those at the bottom of the chain (Employees such as cleaners and warehouse staff).
  • Balance of Payments – Economic growth is associated with higher levels of income and living standards. As incomes increases people tend to import more from abroad.
  • Demand-Pull Inflation – Economic Growth also leads to the AD curve shifting to the right. This causes increased demand for goods and services pushing prices up known as demand-pull inflation.


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