Economics for People
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ECONOMIC GROWTH

In this topic you will learn to:

Examine economic issues
  • examine the arguments for and against increasing economic growth rates
​
Apply economic skills
  • identify and analyse problems facing contemporary and hypothetical economies
  • calculate an equilibrium position for an economy using leakages and injections
  • determine the impact of the (simple) multiplier effect on national income
  • explain the implications of the multiplier for fluctuations in the level of economic activity in an economy

You will learn about:

Economic growth
  • aggregate demand and its components: Y = C+I+G+X–M
  • injections and withdrawals (I+G+X; S+T+M)
  • the simple multiplier: k = 1/(1–MPC)
  • measurement of growth through changes in real Gross Domestic Product
  • sources and effects of economic growth in Australia
  • increases in aggregate supply – improvements in efficiency and technology
  • trends in business cycle

Why is Economic Growth Significant?

Ref: "Economic growth does not guarantee rising happiness: An old paradox lives on" (The Economist, 21/03/2019)
Philosophers from Aristotle to the Beatles have argued that money does not buy happiness. But it seems to help. Since 2005 Gallup, a pollster, has asked a representative sample of adults from countries across the world to rate their life satisfaction on a scale from zero to ten. The headline result is clear: the richer the country, on average, the higher the level of self-reported happiness. The simple correlation suggests that doubling GDP per person lifts life satisfaction by about 0.7 points.
​

Picture
Ref: Dixon & O'Mahoney, 2020: Workbook)
Explain TWO costs of higher levels of economic growth for an economy.



Firstly, higher levels of economic growth increase the level of demand and will usually result in upwards pressure on prices and wages, leading to higher inflation. This is particularly the case when the economy is producing near to its capacity whereby aggregate supply cannot meet aggregate demand. For this reason, the Reserve Bank attempts to keep growth at a sustainable level to avoid large increases in interest rates and fluctuations in the level of growth. Secondly, higher levels of economic growth may lead to external instability.
Economic growth often increases the disposable incomes of consumers. This will usually result in an increase in the volume of imports as consumers purchase more goods from overseas, leading to a deterioration of the balance on goods and services, and a worsening of the CAD.

Read Dixon & O'Mahoney (2020) Ch. 7.6: The Effects of Economic Growth.
Now, in your workbook: explain TWO benefits of higher levels of economic growth for an economy.
Then,  on the padlet below: give a real-world example of when a country enjoyed one of the benefits you described.


Made with Padlet

Try this interactive: 

Snapshot Comparison
This interactive tool allows you to compare snapshots of the economy at different points in time. Click on the the Reserve Bank of Australia image below.
To create your customised snapshot comparison choose two different periods of time or two important events. Before heading to the link, predict economic growth rates for:
(a) GFC 2.6%
(b) COVID-19 Pandemic -6.3%
(c) Early 1990s recession -1.2%

Picture
Mindmap  the arguments for and against increasing economic growth rates. You can use this RBA Explainer.
rba_economic-growth.pdf
File Size: 248 kb
File Type: pdf
Download File

Picture

Is Economic Growth a Moral Imperative?

The Simple Multiplier

Try these questions:
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  • Home
  • Assessment
    • Y11
    • Y12
  • FOR TEACHERS
  • Preliminary
    • THE ECONOMICS OF EVERYTHING >
      • WEEK 1
      • WEEK 2
      • WEEK 3
      • WEEK 4
      • WEEK 5
      • WEEK 6
      • WEEK 7
      • WEEK 8
      • WEEK 9
      • WEEK 10
      • WEEK 11
    • CURIOUS CHOICES >
      • WEEK 1
      • WEEK 2
      • WEEK 3
      • WEEK 4
      • WEEK 5
      • WEEK 6
      • WEEK 7
      • WEEK 8
      • WEEK 9
      • WEEK 10
    • THE WORLD IS NOT FLAT >
      • WEEK 1
      • WEEK 2
      • WEEK 3
      • WEEK 4
      • WEEK 5
      • WEEK 6
    • TO INFINITY AND BEYOND >
      • LABOUR MARKET INSTITUTIONS
  • HSC
    • THE GLOBAL ECONOMY >
      • INTEGRATION
      • TRADE
      • ECO DEVELOPMENT
    • AUSTRALIA'S PLACE IN THE GLOBAL ECONOMY >
      • AUS TRADE & FIN FLOWS
      • EXCHANGE RATES
      • PROTECTION IN AUS
    • ECONOMIC ISSUES >
      • ECONOMIC GROWTH
      • UNEMPLOYMENT
      • INFLATION
      • EXTERNAL STABILITY
      • INCOME & WEALTH
      • ENVIRONMENT
    • ECO POL & MMENT >
      • OBJECTIVES
      • FISCAL POLICY
      • MONETARY POLICY
      • MICRO POLICIES
      • LABOUR MKT POLICIES
      • ENVIRONMENTAL POLICY
      • LIMITATIONS
  • Contact