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AS Economics. Aims and Objectives. Aim: Understand short and long term economic growth Objectives: Distinguish between SR and LR growth Determine factors responsible for growth Analyse policies for managing growth. Starter. - PowerPoint PPT Presentation
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Aims and Objectives
Aim:• Understand short and long term
economic growthObjectives:• Distinguish between SR and LR growth• Determine factors responsible for
growth• Analyse policies for managing growth
Starter
• Draw the diagram to show the distinction between actual economic growth and potential economic growth.
Short Term Economic Growth
• 0A actual growth below trend, high unemployment, low output
• Negative output gap• Can be shown on PPF diagram
Actual Growth
Trend GrowthGDP
TimeA B0
Short Term Economic Growth
• Point A = negative output gap – not reaching it’s productive potential
• A movement from A to the PPF would indicate economic recovery showing that all factors or production are employed
• Can show on AD/AS curvesCapital
Goods
Consumer Goods
A
PPF
Short Term Economic Growth
• AD shifts from AD to AD1 below FE.
• Any factors which restore AD from AD1 to AD will shift A to PPF and restore economy to its trend or potential growth rate.
• Increase in C, I, G, (X-M) will create short term growth
• May not want to increase AD too much - inflationary
LRAS
FE
PRICE LEVEL
REAL GDP
AD1
AD
AD2
Long Term Economic Growth
• Mainly caused by supply side factors
• In LR AS is affected by:– An increase in the qty of
F of P– An increase in the
productivity of factors of production
– Advances in technology and their take-up by firms
• Decide in groups how the government can stimulate each of these factors
LRAS2PRICE LEVEL
REAL GDP
AD
LRAS1
Increase Productivity of F of P
• Invest in education
• Compulsory post 16 education?
• Increase numbers leaving with 5 GCSEs including English / Maths
• Provide apprenticeships
• Encourage university
• http://www.bbc.co.uk/news/education-16803396
Increase Qty F of P
• Create stable environment for investment
• Keep corporation tax competitive internationally
• Allow immigration
• Work schemes
• Expand tertiary sector allowing more women into work
Advances in Technology
• Reduce firm’s costs, become more productive and efficient
• Leads to new products that generate new spending and jobs.
• Investment in technology must be well targeted to stimulate growth ie. Sectors which are expanding.