Causes and Effects of Economic Growth

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“Discuss the Causes and Effects of Economic Growth”

Economic Growth is where goods and services maximise in value over a period of time. This is measured by Real Gross Domestic Product (GDP) which is defined as “The total market value of all final goods and services produced in a country….equal to the total consumer, investment, and government spending, plus the value of exports minus the value of imports.”(www.Investorwords.com) In turn this is measured by the level of aggregate demand in the economy using the equation: AD = C + I + G + (X – M).

The diagram above indicates how real GDP grows over the years.

The diagram above shows that in 2006 GDP grew by 0.7%, 2.7% higher than in 2005. •Output in production grew by 0.1% where as manufacturing grew by 0.6%. •Growth in the service sector declined to 0.8%, as it was previously 0.9%. •Distribution sector also slowed to 0.2% as a cause of weaker growth in retailing and wholesaling. •Government’s final consumption expenditure rose by 1.0% and is now 2.5% above its figure in 2005. “A rise in the trade deficit in real terms acted as a drag on GDP in 2006.” (www.Statistics.gov.uk)

There are many advantages and disadvantages of economic growth. Improving living standards is one of the main advantages because as the economy is growing there are more jobs available, stimulating higher employment levels, therefore people have more money to invest into buying houses. Disadvantages are that as the economy is growing so fast there may be the possibility of inflation. There is also the worry that because people are earning more they have more money to spend on cars therefore there is pollution being emitted into the atmosphere.

Economic growth is normally measured over the long term and is an indicator of how an economy is growing. “Economic growth is caused by improvements in the quality and quantity of the factors of production that a country has available, i.e. land, labour,...
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