2.6 What are the causes, costs and constraints on economic growth?

What students need to learn:

Students should be able to:
Additional Guidance Notes
Actual and potential growth
Identify trends in growth rate; sustainable growth; understand output gaps in developed economies.
Changes in the level of GDP should be distinguished from changes in the rate of growth of GDP, for example, the level of
GDP still rises when an economy grows at a slower rate, as long as growth is positive.

Students will not be expected to know specific numerical information for various countries.
Causes and
constraints on
Explain the significance of factors such as investment or innovation; constraints may be in terms of absence of capital markets or instability of government.
Students should consider some of the following, for example:
  • impact of migration
  • impact of changes in birth rates
  • export-led growth.

Students should understand changes in injections and leakages affect changes in the flow of income.
Benefits of growth
Understand the benefits of growth to citizens of increased standards of living, to firms (increased profits) and to government (for example, increasing tax revenues).
Students may consider whether an increase in income necessarily increases living standards.
Costs of growth
Understand the adverse consequences of growth for the environment; Balance of
Payment problems; income distribution and the opportunity cost of growth.
Evaluation might consider whether the benefits or costs are greater, the difficulties of measurement and the changes over time.
Ahmed Xahir
Ahmed Xahir

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