Economic growth

What is economic growth

Economic growth is the growth in GDP of a country over time. GDP stands for gross domestic product and is the total amount of output for a country in a year. This output is income for the people who produced it in the form of wages, profits, rent and interest. Therefore when we have economic growth both output and incomes in a country are rising.

Calculate and explain how economic growth is measured

Economic growth can be calculated with the formula:

Growth rate = Change in GDP/Original GDP x 100

Lets say there is a country with GDP of £100b. A year later their GDP has risen to £105b. The growth rate = 5/100 x 100 = 5%

GDP per capita is another measure of economic growth. It is a country's GDP divided by its population. This can tell us quite a bit that the GDP alone may not. If we consider again our country with £100b GDP. If this country has 100,000 people then the GDP per capita is 1,000,000,000/100,000 = £10,000 meaning that on average people in the country earned £10000. But if this is a country of 1,000,000 people then GDP per capita is 1,000,000,000/1,000,000 = £1,000. This is a big difference. Therefore GDP per capita can be used as a measure of the standard of living between countries. This can still give a distorted view as it does not take into account costs in those countries.

Analyse recent and historical GDP data

Trading economics is an excellent website to use to get access to economic data. This is the countries page. Most if not all countries will have GDP data available. Once you select a country you will see a GDP tab. Here you will find all GDP related data. Clicking on 'Growth Rate' you will see a page with a chart showing recent GDP growth rates. If you look above the interface allows you to change the date range you want data to cover, the type of chart and sometimes the ability to compare data.

This skill can be a tricky one for students. In my experience students either say too little or too much. This is likely to be a 2-mark question on an exam. Things to cover in your response. Where did it start and where did it end. Was there a trend? Was that trend consistent or did it fluctuate? If you have answered these things you should have a good answer. To analyse the UK GDP growth rate seen below I would say that:

Over the past 10 years UK growth started and has remained low but steady with the exception of the pandemic period which saw both large positive and negative growth quarters.

UK Economic growth rate courtesy: Trading Economics - ONS

You will after explaining the situation have to analyse how that is useful. In this case if you are asked how it might affect individuals you might talk about the low but positive growth meaning on average people would have more income now than before and so could afford more of the stuff they want increasing their standard of living. For businesses it is positive because people have more money to buy their products leading to higher profits. The government will benefit from increased income from taxes which they can use to improve conditions for all.

Analyse the determinants of economic growth

Factor affecting economic growth	How it affects economic growth
Investment	In economics, investment refers to investing in capital equipment i.e. goods that can be used to help you produce more goods. If firms spend money on machinery, factories, offices and the like then there will be more output in the future and so economic growth.
Changes in technology	Over time technology becomes more efficient. Newer technology may therefore be able to have a greater output than older technology. Increased output means economic growth.
Size of the workforce	If there is more labour then the country can produce more. Developed nations tend to rely on an increase in skilled labour due to the industries they specialise in.
Education and training	The level of education and skills in the population will effect their productivity. More qualified and skilled workers are more productive. Therefore education levels can have a big impact on economic growth.
Availability of natural resources	Taking advantage of natural resources in a country can help to develop that industry and supporting industries. The UK has become a world leader in offshore wind power and this has lead to the development of a new sector bringing new jobs and supporting businesses in the north east of England.
Government policies	Governments provide and improve infrastructure. This provides incomes for the firms that build these projects and their workers. This then flows on to create extra spending in the economy. In addition, governments have a range of policies we will learn about in the coming units with which they can affect both the demand and supply side of the economy.

Evaluate the costs and benefits of economic growth

Advantages of economic growth	Disadvantages of economic growth
The standard of living increases because more output means more income and so people can afford more of the things they want.	In order to achieve economic growth people may have had to move from rural locations to cities, leading to more sedentary lives. They may have to commute long distances and work long hours which may contribute to a poorer diet. All of these factors can decrease quality of life.
A decline in poverty because increased growth means that the government earns more in taxes that can be used to help the least fortunate.	Growth may be inequal with the gap between rich and poor growing and the government may choose not to spend money on decreasing that gap. Wealth, meaning a persons assets, tends to create further income and so the fact that wealth is unequally distributed means so to are the benefits of growth.
A rise in quality of life because the government can use it's increased income to improve services like health and education, leading to happier people who make better decisions.	Quality of life may decrease due to environmental factors like pollution and traffic congestion which contribute to global warming.
A rise in employment because to create extra output will likely require additional workers.	If demand grows at a faster rate than supply then economic growth may lead to demand pull inflation. We go into this in greater detail in a future unit.

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Questions

Explain what is meant by economic growth. (2 marks)

The growth in GDP(1) over time.(1)

Explain what GDP is. (2 marks)

he total output of goods and services(1) produced in a country in a year.(1)

Explain what GDP per capita is. (2 marks)

Gdp i.e. total output of a country for a year(1) divided by the number of people in the country to give an average income.(1)

Analyse the effect this growth rate is likely to have had on Chinese citizens. (6 marks)

Growth means an increase in output over time which means an increase in incomes becasue output is income for the people who made it.{AO1} China has had consistent medium to high growth for 25 years with the exception of a few quarters affected by the pandemic.{AO2} This will have mean higher income for individuals{AO3a} and a better standard of living.{AO3a}

It also means more in taxes collected for the government{AO2} which they can use to improve things for people who need it most.{AO3a}

Analyse the factors that may have led to the sustained economic growth in China. (6 marks)

China is a country where the government plays a very large role.{AO1} The government has consistently invested in major infrastructure projects.{AO2} This provides incomes for the firms and individuals who build this infrastructure.{AO3a} This then means these people have more money and they then spend that benefiting other businesses in the economy.{AO3a}

China has also opened itself up to greater foreign investment over the same time period.{AO2} This leads to higher levels of employment which leads to higher incomes and increased demand which when matched by supply means higher output.{AO3a}