ECONOMIC GROWTH?

Economic Growth refers to an increase in real GDP over a particular time. Real GDP is the real value of changes in the price level which is calculated with reference to the constant price. It is adjusted for inflation.

DEMAND SIDE FACTORS- SHORT TERM.

Let us take the example of an economy facing a deflationary gap, that is, which is not using its resources to the fullest. That is, it is producing within the Production Possibility Curve (PPC). If there were to be an increase in the AD, the deflationary gap could be reduce due to the increase in real output. This increase in real output is an increase in real GDP, a reflection of economic growth.

The economy would consequently move to a point closer to the PPC.

SUPPLY SIDE FACTORS- LONG TERM.

If there is an increase in the quality or quantity of an economys factors of production, its potential output increases. Thus, the LRAS curve shifts to the right, increasing potential output as well as the GDP, and causing economic growth.

POSITIVE CONSEQUENCES

Income growth

Higher standards of living Possible due to individual income growth (GDP per capita) Advancements in technology, medicine, appliances, entertainment, etc., which make life easier and pleasurable. Increased government revenue to invest, and spend on infrastructure. (due to higher returns on income tax)

NEGATIVE CONSEQUENCES
Drive to further economic growth may cause poorer living standards due to: High stress levels Inadequate time for leisure/personal relationships Increasing materialistic tendencies Structural Unemployment