AS Economics

Aims and Objectives

Aim:• Understand short and long term

economic growthObjectives:• Distinguish between SR and LR growth• Determine factors responsible for

growth• Analyse policies for managing growth

Starter

• Draw the diagram to show the distinction between actual economic growth and potential economic growth.

Short Term Economic Growth

• 0A actual growth below trend, high unemployment, low output

• Negative output gap• Can be shown on PPF diagram

Actual Growth

Trend GrowthGDP

TimeA B0

Short Term Economic Growth

• Point A = negative output gap – not reaching it’s productive potential

• A movement from A to the PPF would indicate economic recovery showing that all factors or production are employed

• Can show on AD/AS curvesCapital

Goods

Consumer Goods

A

PPF

Short Term Economic Growth

• AD shifts from AD to AD1 below FE.

• Any factors which restore AD from AD1 to AD will shift A to PPF and restore economy to its trend or potential growth rate.

• Increase in C, I, G, (X-M) will create short term growth

• May not want to increase AD too much - inflationary

LRAS

FE

PRICE LEVEL

REAL GDP

AD1

AD

AD2

Long Term Economic Growth

• Mainly caused by supply side factors

• In LR AS is affected by:– An increase in the qty of

F of P– An increase in the

productivity of factors of production

– Advances in technology and their take-up by firms

• Decide in groups how the government can stimulate each of these factors

LRAS2PRICE LEVEL

REAL GDP

AD

LRAS1

Increase Productivity of F of P

• Invest in education

• Compulsory post 16 education?

• Increase numbers leaving with 5 GCSEs including English / Maths

• Provide apprenticeships

• Encourage university

• http://www.bbc.co.uk/news/education-16803396

Migration Economist Articles

Increase Qty F of P

• Create stable environment for investment

• Keep corporation tax competitive internationally

• Allow immigration

• Work schemes

• Expand tertiary sector allowing more women into work

Advances in Technology

• Article

Advances in Technology

• Reduce firm’s costs, become more productive and efficient

• Leads to new products that generate new spending and jobs.

• Investment in technology must be well targeted to stimulate growth ie. Sectors which are expanding.

Plenary

• Construct two diagrams that you could use in essays to show the effect of growth on an economy.

• Explain what the diagrams show.