Economic Growth
Growth
- Economic growth occurs when potential output (Y*) changes
- AD/AS model looked at how actual output (Y) changes around potential
- How does potential output change? Through GDP/Capita and the production function below.
GDP/capita
An economy grows if:
- Average labour productivity increases; or
- Share of population employed increases
Factors which influence labour productivity are:
- Capital
- Technology
The Production Function and Growth Accounting
Economic Cycles
The economy goes through cycles of expansion and contraction between peaks and troughs in GDP.
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