Economic Growth

As one of the three major economic indicators to assess the economic development of nations, economic growth is widely pursued by many countries to advance national progress. This topic will cover the definition, methods of measurement, factors affecting economic growth, impacts of economic growth as well as possible macroeconomic policies that are used to acheive this economic condition prepared by our JC Economics Tutor Simon Ng from Economicsfocus. Ultimately, governments desire to achieve sustainable economic growth due to the widespread benefits.

economics tuition notes definition


What is economic growth?

-Economic growth refers to the growth of the production in term of actual or potential production capacity.

How to measure economic growth?

-Economic growth is usually measured in term of the percentage change in real GDP.

What is potential growth? What is short-term growth?

-Potential growth refers to the expansion of the availability of resources for production which is measured in term of rightward shift of the long run supply curve and outwards shift of the production possibility curve (PPC)

What is actual growth?

-Actual economic growth refers to the actualization of resources into monetized products and services which is commonly measured in term of the percentage change in real GDP.

-Actual economic growth is the percentage annual increase in national output actually produced that is the percentage change in the Gross National Product/Gross Domestic Product over the previous year

What is sustainable economic growth? What is long-term growth?

-Sustainable growth refers to the expansion of the actual production capacity without incurring excessive rise in cost condition.

What is the Production Possibility Curve (PPC)?

-The PPC reflects the resource and production capacity an economy can attain with the given resources and technology.

What are the determinants of economic growth?

-Physical Capital

-Labour Resources

-Land and Raw Materials


-Technological Advancement

-Favourable cultural, social and political environment

-Legal institutions

-Cultural attitudes

-A social structure that allows fluid upward and downward mobility based on performance and merit

-Political stability

How to achieve desirable economic growth?

Sustainable Growth

-Dimensional and Diversified Development

-Benefits of economic growth is triggered downward and widely distributed

-Minimization of opportunity cost between standard of living and growth rate and between industries

What are the positive impacts of economic growth?

-Higher Standard of Living

-Redistribution of Income is Easier

-Encourages Investment

-Provide a higher degree of employment

-Care More for the Environment

What are the negative impacts of economic growth? Why should the government not focus excessively on economic growth? Why other aims are more important that economic growth?

-Current Opportunity Costs of Growth

-May lead to structural unemployment

-May induce inflationary condition

-Inequality in Income Distribution

-Depletion of Non-Renewable Resources

-Increase in Negative Externalities

-Non-Economic Costs, such as stress and anxiety

What is Gini co-efficient?

-The Gini coefficient is a measure of statistical dispersion, commonly used as a measure of inequality of income distribution or inequality of wealth distribution.

What is Gross Happiness Index?

-Gross National Happiness (GNH) is an attempt to define quality of life in more holistic and psychological terms than Gross National Product.

What is Genuine Progress Indicator?

-Genuine Progress Indicator (GPI) is a concept in green economics and welfare economics that has been suggested to replace gross domestic product (GDP) as a metric of economic growth.

What is life expectancy?

-Average age people are expected to live to

What are the obstacles to economic growth?

-Lack of financing

-Lack of capable and efficient government bodies to develop and implement plans to achieve the aims

-Restraint of the economy

-Constraints of the policies

-Inability to control systemic factors

Why is economic growth the most important aim?

-Economic growth provides government higher tax revenue

-Economic growth will enable the government to introduce more public expenditures to help lower income group and improve infrastructural development and facilities to raise standard of living for lower income group

-Economic growth will generate greater market demand and stimulate inflow of foreign direct investment

-To expand the supply of goods and resources to curb inflationary impact

-Improvement in balance of trade and balance of payment to ensure external stability

What is a technical recession? What is economic recession?

-It refers to an economic condition in which a country experiences negative economic growth for at least two consecutive quarters.

What is jobless growth?

-Situation where there is economic growth without the increasing labour to increase production

-This can happen with the improvement of technology and factors of production.

What is inflationary condition? What is overheating of an economy? What is rising cost condition?

-This refers to a situation where cost of production increases, leading to cost-push inflation. Typically, this condition is attributed by the inability of production capacity to meet rising aggregate demand.

What is sub-prime mortgage?

-It refers to a type of loan granted to individuals that do not qualify for conventional lending as they face difficulties maintaining repayment schedule.

What is capital flow?

-It refers to the movement of capital in or out of a country due to certain factors like market and investor confidence.

What are raw materials?

-It refers to basic material or substance from which a product can be made.

What is physical capital?

-It refers to factors of production like machinery and buildings.

What are capital goods?

-They are already-produced durable goods that can be used in production process of goods and services.

What is Foreign Direct Investment (FDI)?

-It refers to direct investment in production in another country, conducted by company. The investment is used to support an existing business operation or start up a new business operation.

How do countries attract Foreign Direct Investment (FDI)

-Establishing improved infrastructure, maintaining political and social stability to boost investor confidence and introduce incentives that would benefit foreign investors.

Why is there overheating of an economy?

-The inability of production capacity to meet the increasing aggregate demand is possibly due to increasing consumption, investment, government expenditure and net exports. Also, excessive government regulation to boost economic growth may also lead to overheating.

What is literacy rate?

-It refers to the rate or proportion of the population within a country over age fifteen that can read or write, within a period of time, usually a year.

What is child mortality rate?

-It refers to death of infants under five years-old within a period of time, usually a year.

What is hot money?

-It refers to money held by foreign investors that is liable to switch to another country’s currency within a short notice, so as to obtain highest returns.

What is labor productivity?

-It refers to the amount of good or service that a worker is able to produce in a given period of time.