Economic growth is the increase in real output/real gdp measured by real income/real gdp, productive capacity and net social welfare. Sustainable economic growth is the rate of economic growth that is maintained to prevent future economic problems for generations to come. An ideal growth rate is one that helps the economy stay in the recovery/expansion stage of the business cycle. The ideal growth rate to maintain a sustainable economy is between 2-4%. A growth rate below 2% is too slow for the economy to do well and at a rate higher than 4% economic growth becomes too fast to keep up. Growth has both positive and negative effects on the economy. Households desire economic growth as it increases employment, which therefore increases household
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The lower interest rates will therefore make borrowing from the bank reasonably more affordable, which will encourage borrowing by firms and will encourage and give firms the opportunity to invest more. Increased investment will result in a shift right of the aggregate demand [C+↑I+G+(X-M)] curve as there is increased demand and purchase for capital goods. Lower interest rates will also discourage households to save as the amount of interest received is lowered so households are likely to spend more domestically as importing/buying from overseas becomes relatively too expensive so domestic products will become more attractive as they will be cheaper. Increased consumer spending will also result in a shift right of the aggregate demand curve. The right shift of the aggregate demand curve will result in inflation as there will be an increase in price level (PL) and an increase in real output (Y) which moves the economy closer to full employment (YF) and as a result, economic …show more content…
The aggregate demand curve decrease will therefore decrease the price level (PL) and shift Y left to Y’ moving the economy further away from full employment (YF) and therefore causing negative growth, so to achieve economic growth loose monetary policy is the better of the two as it results in positive economic growth rather than negative economic growth. Free trade policies allow/give countries the opportunity to trade with a wider market and consumers have a broader range to purchase from. The free trade policy will mean firms will have to start producing a lot more as the selling market gets significantly larger, although they have to produce more the broader market will mean firms can purchase the goods needed for production, a lot cheaper to help them produce more. Firms being able to buy cheaper goods from overseas firms instead of buying them for a higher cost domestically will lead to a decrease in costs of production for firms and will lead to an increase in production and will therefore shift the aggregate supply curve to the
The lower interest rates will therefore make borrowing from the bank reasonably more affordable, which will encourage borrowing by firms and will encourage and give firms the opportunity to invest more. Increased investment will result in a shift right of the aggregate demand [C+↑I+G+(X-M)] curve as there is increased demand and purchase for capital goods. Lower interest rates will also discourage households to save as the amount of interest received is lowered so households are likely to spend more domestically as importing/buying from overseas becomes relatively too expensive so domestic products will become more attractive as they will be cheaper. Increased consumer spending will also result in a shift right of the aggregate demand curve. The right shift of the aggregate demand curve will result in inflation as there will be an increase in price level (PL) and an increase in real output (Y) which moves the economy closer to full employment (YF) and as a result, economic …show more content…
The aggregate demand curve decrease will therefore decrease the price level (PL) and shift Y left to Y’ moving the economy further away from full employment (YF) and therefore causing negative growth, so to achieve economic growth loose monetary policy is the better of the two as it results in positive economic growth rather than negative economic growth. Free trade policies allow/give countries the opportunity to trade with a wider market and consumers have a broader range to purchase from. The free trade policy will mean firms will have to start producing a lot more as the selling market gets significantly larger, although they have to produce more the broader market will mean firms can purchase the goods needed for production, a lot cheaper to help them produce more. Firms being able to buy cheaper goods from overseas firms instead of buying them for a higher cost domestically will lead to a decrease in costs of production for firms and will lead to an increase in production and will therefore shift the aggregate supply curve to the