Economic Growth | A-Level Economics Notes
These revision notes cover everything you need to know about Economic Growth for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
What is the difference between real and nominal?
Real - adjusted for inflation
Nominal - not adjusted for inflation
What does per capita mean?
per person (divide by the population)
What is real GDP?
The total value of goods and services produced in the UK economy
What are two limitations of using real GDP to measure living standards?
Two limitations of using real GDP to measure living standards are that
- it does not factor in inequality
- it does not take into account subjective happiness as these might be influenced by stressful jobs or the number of hours worked
What is (actual) economic growth?
An increase in real GDP
What is potential economic growth?
An increase in the productive potential of an economy
What is the trend rate of economic growth?
The trend rate of growth is the average rate the productive potential is increasing at over a longer period e.g. 10 years.
What are the four stages of the economic cycle?
- boom: high economic growth, low unemployment, high inflation
- downturn
- recession: negative economic growth, high unemployment, deflation
- recovery
What is a positive output gap?
When economic growth is faster than the trend rate of growth
- fast economic growth
- very low unemployment
- high inflation
What is a negative output gap?
When economic growth is slower than the trend rate of growth
- slow economic growth
- low inflation
- high unemployment
Explain how an increase in real incomes can lead to an increase in subjective happiness
Higher economic growth can allow for higher levels of income per capita. This can allow people to consume more goods and services and therefore satisfy more of their needs and wants.
Explain how an increase in real incomes might not lead to an increase in subjective real incomes and subjective happiness
A higher level of national income can have a weak correlation with average happiness as higher GDP can also be linked to longer working hours, more stressful jobs, and other issues like inequality and environmental damage.
The Easterlin Paradox explains how people might care more about their relative income than their actual income.
Summary questions
- What is the difference between real and nominal?
- What does per capita mean?
- What is real GDP?
- What are two limitations of using real GDP to measure living standards?
- What is economic growth?
- What is potential growth?
- What is the trend rate of economic growth?
- What are the stages of the economic cycle
- What is a positive output gap?
- What is a negative output gap?
- Explain how an increase in real incomes can lead to an increase in subjective happiness
- Explain how an increase in real incomes might not lead to an increase in subjective real incomes and subjective happiness
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