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Understanding Short and Long-Term Economic Growth: A Comprehensive Analysis

This lesson aims to deepen understanding of both short-term and long-term economic growth. Students will learn to distinguish between actual and potential economic growth, identify factors driving growth, and analyze various policies for managing economic performance. The starter task involves drawing a diagram that illustrates the differences between actual and potential economic growth. The session covers concepts such as negative output gaps, factors affecting productivity, and the role of technology in fostering sustainable growth. The lesson culminates with diagrammatic representations demonstrating the effects of growth on an economy.

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Understanding Short and Long-Term Economic Growth: A Comprehensive Analysis

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  1. AS Economics

  2. 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

  3. Starter • Draw the diagram to show the distinction between actual economic growth and potential economic growth.

  4. Short Term Economic Growth • 0A actual growth below trend, high unemployment, low output • Negative output gap • Can be shown on PPF diagram GDP Trend Growth Actual Growth 0 Time A B

  5. 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 curves Capital Goods PPF A Consumer Goods

  6. Short Term Economic Growth PRICE LEVEL LRAS • 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 AD2 AD AD1 FE REAL GDP

  7. Long Term Economic Growth PRICE LEVEL • 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 LRAS2 LRAS1 AD REAL GDP

  8. 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

  9. Migration Economist Articles

  10. 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

  11. Advances in Technology • Article

  12. 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.

  13. Plenary • Construct two diagrams that you could use in essays to show the effect of growth on an economy. • Explain what the diagrams show.

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