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Economic Growth: UK Current Perspectives Lesson objectives •Show an awareness of the recent performance of the UK economy •Distinguish between short-run and long-run economic growth •Analyse short-run and long-run economic growth using diagrams •Evaluate the causes and consequences of economic growth Starter •Read the newspaper article on the latest economic growth figures •What are the factors driving or hindering growth? •Use the force field model to assess the factors Key terms •Real GDP growth •Inflation •Balance of payments •Unemployment •Standard of living •Short-run economic growth •Long-run economic growth •Output gap •Spare capacity Economic Growth in the Short Run Economic Growth in the Long Run Economic Growth in the Long Run Capital Goods B K2 A K1 C1 C2 Country operating at full capacity but discovers new resources or find ways of improving the efficiency of existing resources, for example, education of the population to improve the quality of human capital. Consumer Goods Scenarios •Depreciating capital is not replaced LRAS shifts left •Tighter monetary policy AD shifts left •An improvement in technology LRAS shifts right •Interest rates fall AD shifts right •The exchange rate rises AD shifts left Scenarios •The government cuts the rate of VAT AD shifts right •Business and consumer confidence improves AD shifts right •Government spending on benefits cut AD shifts left •Training improves labour productivity LRAS shifts right Positive vs. negative aspects of economic growth The class will be split into two teams One side will look at the positive aspects of Economic Growth and the other at the negative aspects of Economic Growth A team leader will be appointed for each team. Positive vs. negative consequences of economic growth Each team leader must divide up the positive or negative consequences of economic growth to the individuals in their team. Each individual must ensure they (a) can explain the consequence they have been given, (b) can explain any further consequences that may arise (c) and assess the significance in terms of total economic growth The team leader must ensure that each member of their team’s explanation is sound and then the individual must write the explanation down in 30 words or less. You have 10 minutes in total to complete this part of the activity. Positive vs. negative consequences of economic growth Each individual within the team must be confident enough to explain their positive or negative aspect to the rest of their team. The team leader must ensure that the individual has explained their aspect clearly. Once an individual has explained their aspect to the team, the team must write it down in their own words on their worksheet. If any members of the team are confused they must ask the individual to clarify. You have 6 minutes in total to complete this part of the activity Positive vs. negative consequences of economic growth Each individual within the team must be confident enough to explain their positive or negative aspect to another member of the class. This is a challenge between the two teams, once an individual has explained their aspect to the opposition the opposition must repeat what the aspect is and then write down the title and description in their own words on their paper. Individuals are not to show the other person their worksheet, and will be penalised if any copying occurs. You will get 2 minutes with each other to exchange positive/negative aspects of economic growth. You will continue until you have completed your worksheet. You have 8 minutes in total to complete this part of the activity Positive consequences of economic growth – Lulu - Team Leader 1. 2. 3. 4. 5. 6. Higher standards of living Foreign direct investment (FDI) Consumer confidence Increased tax revenues Less unemployment Improved welfare support Emily, Iqrah, Amrita, Yolanda, Zainab Negative consequences of economic growth Clemmie – Team leader 1. 2. 3. 4. 5. 6. 7. Inflation Externalities of growth North/South Divide Increase in crime and social problems More hours spent at work Diseases of affluence – e.g. diabetes Current account deficit worsening Latoya, Grace, Eemaan, May, Omara, Aneek Consequence of economic growth Inflation North/South Divide Increase in crime and social problems More hours spent at work Diseases of affluence – e.g. diabetes Current account deficit worsening Externalities of growth Analysis Evaluation – how significant is this factor? Consequence of economic growth Higher standards of living Foreign direct investment (FDI) Consumer confidence Improved welfare support Less unemployment Increased tax revenues Analysis Evaluation – how significant is this factor? Create a mind map of how the government encourages economic growth How does the government encourage economic growth? • Hint How do they manipulate the components of AD to increase growth? How do they improve the supply of the economy in the LR? Exam Question •Evaluate whether the benefits of economic growth outweigh the costs Summary •What is economic growth? •How would you illustrate economic growth in the SR? and the LR? •Give three reasons why economic growth is an important government objective…… Challenge – how many connectives can you use? AD and “rebalancing” C + I + G + (X-M) Proportion of GDP 66% 10% 26% 29% 31% Contribution to GDP growth in 2014 2.1% 6.8% 1.5% 0.4% 2.6% Current data • • • • UK on course to grow by 2.6% in 2015 Q3 growth was estimated to be 0.7% up from 0.4% in Q2 GDP per capita has recovered to its pre crisis 2008 peak UK economy has now experienced 10 quarters of economic growth • Services grew by 0.7%, manufacturing declined by 0.2%, construction experienced no growth AD-AS Analysis: the output gap? Consumption • Confidence • Deleveraging (reducing debt by selling assets) and monetary policy • Pay settlements and cost of living (3.3% salary increases) Investment • • • • Confidence and holding cash reserves Access to credit Accelerator impact Global uncertainty: EU referendum, China "If we don’t deal with this [the deficit], there will be no growth, there will be no recovery. It will be undercut by rising interest rates, rising inflation, falling confidence and the prospect of higher taxes...So on 22nd June, we will have an emergency Budget, setting out how we will cut the bulk of our deficit over the course of this Parliament, giving this country what it has been desperately lacking – a credible plan to live within its means.“ David Cameron 2010 Government Expenditure • • • Deficit reduction Automatic stabilisers Weak growth • Demand from abroad • Productivity gap • Exchange rate A balanced UK economy? Long term threats to UK growth (Institute of Economic Affairs) • Increased public spending and taxation as a proportion of GDP due to the rapid increase in the early twenty-first century. This factor alone has reduced the sustainable growth rate by around 0.5 per cent – possibly more • Increased government, corporate and household debt relative to GDP • Demographic pressures from an ageing population • Increased regulation of the energy and financial services sectors. These sectors had contributed substantially to the productivity performance of the economy in earlier decades • The depletion of North Sea oil • The arithmetical affect of low-productivity immigrant workers being added to the working population • The huge growth in credit before the crisis, followed by its contraction since – partly driven by increased banking regulation Current perspectives http://www.bbc.co.uk/news/business-33686358 http://www.telegraph.co.uk/finance/economics/11452004/Briti sh-productivity-is-a-national-disgrace.html http://www.telegraph.co.uk/finance/economics/11851629/Unb alanced-but-lucky-Britain-hits-an-economic-sweet-spot.html http://www.telegraph.co.uk/finance/newsbysector/industry/en gineering/11424693/Is-the-march-of-the-makers-rebalancingthe-economy.html