1. Achieving Economic Growth Economic Growth is measured by the change in GDP and may be shown as a total figure or, in per capita terms

2. Economic Growth People demand higher living standards. In order to achieve this growth the Gov.t tries to achieve faster rates of growth in the economy. Economic growth is the increase in the amount of goods and services produced from one year to the next

3. Measuring Growth Production of commodities generates income for people: • Wages, • Rent, • Interest, and • Profits Economists measure the rate of economic growth by measuring how much GDP has increased each year.

4. Growth Rates The average growth rate experienced by the UK economy in the 1950’s and 1960’s was 2½%. Japan, Taiwan and Singapore achieved growth rates of 10%+ (which is classed as ‘miracle growth’). High rates of growth can be deceptive. The effect of growth on living standards can be minimal if growth is from a low base

5. Economic Growth and Living Standards Countries with high levels of National Income will experience significant increases in living standards from modest rates of economic growth. However, in the 1950’s, the UK had one of the highest national incomes per head. At the same time it had one of the lowest growth rates. By the 1980’s the UK had one of the lowest national incomes per head in the western world

6. Narrowing the gap The implication of sustained,high levels of economic growth is that some developing countries are catching up on UK national income levels. Brazil, Korea and SingaporeG have reduced the gap between themselves and the UK.

7. Causes of Economic Growth Increase in the value of output Increase in the quantity, quality of the factors of production. (land, labour & capital) Improvements in the way that factors of production are combined

8. As has already been suggested, an economy can grow for a number of reasons: • More people labour force increases  • More investment factories and machines  • Quality of productive resources is also important – improvement in quality output 

9. Aggregate Supply • Unemployment sky rockets is this a slump? Computer staff shortage delays expansion plans More miners laid off Inflation reaches all-time high Output Pricelevel

10. Aggregate Supply • The aggregate supply curve shows how much will be produced at any given price. • It can be used to show how much an economy is producing.

11. Aggregate Supply Output B CO The diagram shows a possible aggregate supply curve. At an output level of OC, the aggegate supply curve is vertical. This is because OC, the aggregate supply curve is also the level of full capacity – this is when no factor of production – land labour and capital – is unemployed. If all factors of production are fully employed, then it is impossible to increase aggregate supply.

12. Full Capacity • It is possible for an economy to reach a point where it cannot grow anymore but still have unemployment. This may be due to occupational and geographical immobility. • If an economy is producing at below full capacity, then an increase in output is possible. Between output levels OB and OC, it is assumed that firms can only increase output by also raising their prices.

13. Increasing Output at Full Capacity Raising output will mean that firms have to; • Take on more workers, • Increase their demand for raw materials, • Expand their premises • Buy more machinery

14. Inflationary Pressure at Full Capacity Increases in factor costs will force firms to put up their prices – inflation Inflation is a sustained rise in prices, which is measured by the RPI.

15. Tasks Draw an Aggregate supply diagram supply diagram to show economic growth. What might a contraction of the economy look like?

16. Aggregate Demand In a market, the quantity bought and sold is determined by the forces of supply and demand. The economy is made up of a number of different markets. Equilibrium occurs where total or Aggregate Demand = total or Aggregate Supply.

17. There are four main items of expenditure: 1. Households spend money on consumption (C) 2. Private individuals ‘spend money’ on investment (I) 3. Government expenditure (G) 4. Exports add to domestic demand (X) Some goods are bought from abroad – payments abroad are not included in national income calculations, imports (M) are deducted

18. Aggregate demand AD = C+I+G+X-M AD curve shows the relationship between price level and demand. An increase in price means that consumers need more money in order to buy the same number of goods as before.

19. Aggregate Demand The AD curve is downward sloping. A rise in the price level will lead to a fall in consumption, investment and exports, while imports may increase. Tasks Draw an AD curve Combine an AD curve with an AS curve on a single diagram