• Economic activity and economic growth are measured by GDP (Gross Domestic Product)
    • The market value of all goods and services produced within a country.

Key Factors Affecting Short-term Economic Growth

  • Interest rates set by the central bank
  • Fiscal policy – government spending and taxation
  • Commodity prices such as oil, gas and foodstuffs
  • Exchange rates
  • Trading conditions in other countries
  • Confidence of businesses and households

Economic and Social Costs of Growth

  • High rates of GDP growth can bring about undesirable economic and social costs - much depends on the nature of growth

  • Risks of higher inflation and higher interest rates

    • Fast-growing demand can lead to demand-pull and cost-push inflation - this leads to a conflict between macro objectives
    • The central bank may decide to raise interest rates to control inflation
  • Environmental effects

    • More negative externalities such as pollution & waste
    • Risk of unsustainable extraction of finite resources - ie, fast growing countries may cause a long-run depletion of natural resources
  • Inequalities of income and wealth

    • Rapid increases in real national income can lead to a higher level of inequality and social divisions
    • Many of the gains from growth may go to only a few people