Economic growth
Economic growth
- Economic growth = a rise in real GDP over time.
- actual growth — output that really happens (towards/along the curve).
- potential growth — a rise in capacity (LRAS shifting outward).
- Caused by more/better factors: a bigger or more skilled workforce, more investment, new technology, higher productivity.
Practice
Economic growth is a rise in:
Growth is a rise in real output (real GDP); potential growth shifts the LRAS outward.
The business cycle
- Real output swings in a cycle: boom → recession → slump → recovery, around a rising long-run trend.
Practice
Order the phases of the business cycle.
The cycle runs boom → recession → slump → recovery around the long-run trend.
Costs and benefits
- + higher incomes, more jobs, less poverty, more tax for services.
- − can cause inflation (if AD grows too fast), pollution, and a wider rich–poor gap.
Practice
A possible cost of fast economic growth is:
Rapid growth can cause inflation, pollution and wider inequality, even as incomes and jobs rise.
You've got it
Key idea
- economic growth = rising real GDP; actual (output) vs potential (capacity/LRAS out)
- the business cycle: boom → recession → slump → recovery
- growth lifts incomes/jobs but can bring inflation, pollution, inequality