Learning Objectives

o The candidate will be able to understand

and evaluate the causes of Economic
Growth including increases in total demand
and changes in investment, technology and
the quantity and quality of the factors of
production
Causes of Economic Growth

 Economic Growth doesn’t have a

set recipe.
 It is evident that different
countries grow at different rates
and for different reasons.
 Every country’s economy is built
differently
The Possible Causes
 Increase in Total Demand
– Can come from a number of sources
– However this is a short term cause as once an
economy is at full capacity no more can be
produced
o Improvements to the Labor Force
– Improvements to Quality and Quantity will
allow for long term economic growth through a
rise in productivity
Progression in Technology
– As technology gets better, it can lead to an
economy being more productive which will fuel
economic growth
The Possible Causes
 Investment
– This would fuel economic growth but the
actual source of the growth would be from new
Capital Goods e.g. Machines
 Actual Growth
An increase in Real GDP
Movement from inside to on the
PPC
By:
 Employing previously
unemployed resources
 Use of efficient techniques of
production
 Rightward shift of aggregate
demand (AD)
Potential growth
An increase in potential GDP
Outward shift of whole PPC
By:
 Increase in quantity of resources
 Increase in productivity of
resources
 Rightward shift of long-run
aggregate supply (LRAS)

Good Y Good Y

A C
E A

D
C

0 0 B D
Good X Good X
 Causes of Potential Economic Growth
A change in the Quantity of Change in Quality (Productivity) of
Resources: Resources:
Land: Labor:
• Discovery of oil or mineral reserves by • Wage rate
active search • Education & training
• Eroded, water-logged land may be made • Technology
usable for agriculture purposes • Working conditions
(reclamation of land) • Length of working hours
Labor: • Fringe benefits/perks/non-monetary
• Increase in total population, especially benefits
in the working population. • Bonuses & commissions
• Change in structure of population • Promotional opportunities
• Immigration is greater than emigration • Health
• Increased women participation in Jobs Capital:
• Lower school leaving age • Technology
• Higher retirement age • Skilled Labor
Capital: • Depreciation, etc.
• Net Investment Land:
• Rate of return on Capital • Technology
• Interest Rate • Skilled Labor
• Government policies • Fertility rates, etc.
• Technology Entrepreneurship:
• Infrastructure • Communication
• Management Techniques
Causes of Actual Economic Growth

 Expansionary fiscal Policy G ,T

 AD GDP Actual Growth
 Expansionary monetary policy
 MS IR C , I Exports Imports
AD GDP
 Exchange rate Depreciation
 Exports-cheaper, Imports-Expensive
 (X-M) If D=Elastic AD GDP
Past papers Question
 Q1. Explain two causes of economic growth.
[4]
 Q2. Discuss whether monetary policy
measures can increase economic growth.
 Q3. Discuss whether or not increased
government spending will increase economic
growth. [8]