AS Economics

Aims and Objectives

Aim: Understand short and long term economic growth Objectives: 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

GDP

Trend Growth Actual Growth

Time

Short Term Economic Growth

Point A = negative output gap not reaching its 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 curves Capital Goods
A PPF

Consumer Goods

Short Term Economic Growth

PRICE LEVEL AD2 AD LRAS

AD1

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
REAL GDP

FE

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
PRICE LEVEL

LRAS1

LRAS2

AD

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

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/ed ucation-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 firms 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.