Download Macroeconomic Policy Objectives

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
0
A
B
Time
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 curves
Capital
PPF
Goods
A
Consumer Goods
Short Term Economic Growth
PRICE
LEVEL
LRAS
AD2
AD
AD1
FE
• 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
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 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.