1. Economic growth Learning outcome V Define economic growth
SBC Economics
Economic growth
Learning outcome V
Define economic growth
Explain the difference between GNP and GDP
Describe the measures used to indicate economic growth
Explain the business cycle
Explain the trend rate and the output gap
Explain the determinants of economic growth
Evaluate the costs and benefits of economic growth
Reading: Unit 26

2. Economic growth
Economic growth is an increase in the level of national output
National output can be increased if there is an increase in the quantity or quality of inputs to the production process
National output can be increased if inputs are used more efficiently
This can be shown as a production function

3. Economic growth Production function
Output = f (land), f (labour), f (capital),
f (technological progress),
f (efficiency)

4. Economic growth
In order therefore for an economy to grow there must be a greater amount or better use of land, labour and capital
Growth can also come from technological progress

5. Land Land includes all natural resources (not just land itself)
Different countries have different endowments of land
Some nations rely heavily on exploiting their natural resources to develop i.e. Saudi Arabian oil

6. Which natural resources is China endowed with?
Land: Question
Which natural resources is China endowed with?

7. Labour
Increasing the numbers of workers in the economy should lead to growth, this can be achieved through:
Changes in demography i.e. the number of people entering or leaving the labour force
Increases in the participation rates i.e. how many people who could work do work, such as women who choose to stay at home
Immigration i.e. the number of people coming from foreign countries to enter the labour force

8. Labour
Workers can be made more productive, this is known as increases in human capital
Human capital is important as:
Workers need to be educated enough to be able to cope with their jobs
Workers need to be flexible
Workers need to be able to contribute to change

9. Capital
If economic growth is to be sustained there must also be an increase in the stock of capital
There must be sustained investment in the economy i.e. the investment made by the government in building the Three Gorges Dam
To contribute to economic growth the investment must be well targeted (show a good rate of return)

10. Technological progress
Technology contributes to growth in two ways:
It reduces average production costs i.e. more efficient machinery or the use of computers to do complex tasks
It creates new products for the market which consumers spend their income on i.e. many people now own a mobile phone, this wasn’t the case fifteen years ago

11. Question
If you wished to get an understanding of the change in living standards in a country would the total GDP or the GDP per capita be a more useful figure? Why?