GrowthoftheEconomyAndCyclicalInstability Content EconomicorbusinesscycleTheNatureandCausesofFluctuationsineconomicactivityThetrendratesofeconomicgrowthThecostsandbenefitsofeconomicgrowthTheuseandlimitationsofnationalincomeasanindicatorofchangesinlivingstandards EconomicCycle ThisshowstherateofeconomicgrowthcomparedtolongtermtrendratesTheeconomiccycleshowsdifferencesovertimebetweenrapideconomicgrowth boom recovery andalternativeperiodswheretheeconomyisnotgrowingorisdeclininginsize recessionorcontraction ThemeasureusedtoassessthegrowthoftheeconomyisthecomparisonofgrossdomesticproductorGDPovertime GDP definition GDP GROSSDOMESTICPRODUCTTheMarketvalueofallgoodsandservicesproducedwithinthecountry whatweproducewithintheUK output WhatistheBusinessCycle AlsoknownasthetradecycleMosteconomiesovertimewillseeantrendofupwardprogressionDoesnotgrowsmoothly fluctuategoingthroughupsanddownsknowastheBUSINESSCYCLE Time Output StagesoftheBusinessCycle Boom peak FasteconomicgrowthConsumerspendingandinvestmenthighBusinesswillhavehighdemandforgoods servicesIncreasingincomes increasingcompetitionforworkers Profitshigh highdemandforresources pricesrisecanleadtoinflation Wagesrising HighoutputduetohighdemandSteadyeconomicgrowthBusinessandconsumerconfidencehigh StagesoftheBusinessCycle Recession downturn economicslowdown IncomesstarttofallOutputstartstofallPossiblefallindemandforproductsDeclineinprofitLayoffworkers unemploymentConsumer save andbusinessconfidenceislowReducedinvestment StagesoftheBusinessCycle Slump depression HighunemploymentConsumerconfidencelowInvestmentlowProfitslowClosuresAnygrowthwillbeslow StagesoftheBusinessCycle Recovery expansion upswing IncomestartsriseOutputincreasesSpendingandconsumerconfidenceincreasesMoreemploymentasaresult CausesofEconomicGrowth Booms dipsineconomicgrowthcanoccurduetoanumberofreasons Increaseinaggregatedemandcausedby Anincreaseinconsumption thismaybecausedby ariseinincomelevels andecreaseininterestrates housepriceinflationAriseinthelevelofgovernmentspendingAbalanceofpaymentssurplus CauseofEconomicGrowth 2 Labourshortages ifthereareshortagesofworkersinspecificareasitmeansthattheeconomywillnotbeabletoutiliseitsresourcesefficientlyandthereforeeconomicgrowthwillslow3 Increaseindemandforimports thiswillworsenthebalanceofpaymentsdeficit DemandandSupplysideshocks SupplysideanddemandsideshockscanleadtoinstabilityintheeconomyShocksareunexpectedeventsthatinfluencethedemand supplyinaneconomyAstheUKoperatesinaglobalmarkettheireconomyisopentoshocksfromacrosstheworld DemandSideShocks Thesecaninclude AsignificantriseorfallinexchangeratesinshorttermChangesintherateofeconomicgrowthforcountriesthatyoutradealotwithChangesinaggregatedemandAboomincapitalexpendituree g inconstructionorICT SupplySideShocks TheseaffectthecostsandpricesofsupplyThesecaninclude TechnologyNaturaldisasterswhichimpactthesupplyofparticulargoodse g cropsPoliticalsituationsthatinfluencethesupplyofparticularproductse g oil Trendrateofeconomicgrowth ThetrendrateofeconomicgrowthshowstherateofeconomicgrowthistheaveragerateofeconomicgrowthoveraperiodoftimeThetrendrateofeconomicgrowthisinfluencedbyanumberoffactorsofsupplysideincluding InvestmentEducationTrainingTechnologicalchange Influencesonthetrendrateofeconomicgrowth Investment InvestmentinfluencesthetrendrateofeconomicgrowthashigherlevelsofinvestmentincreaseADandexpenditurewithintheeconomyInadditioninvestmentexpendituremeanstherearemorecapitalgoodsforworkerstousetoproduceconsumergoodsthereforeincreasingthelevelofoutputintheeconomy Influencesonthetrendrateofeconomicgrowth EducationandTraining EducationandtrainingcanincreasethegrowthrateofthelabourforceintheeconomyThesecanbothincreasethetrendrateofgrowthinlabourproductivityintheUKthereforedrivingthelevelofeconomicgrowth Influencesonthetrendrateofeconomicgrowth technology ChangesintechnologycanreducethecostsofgoodsintheeconomyIfthecostsofsupplyingproductsdecreasesthenproductionpossibilityfrontierwillshiftoutwards TheCostsandBenefitsofEconomicGrowth TherearecostsandbenefitsthatareassociatedwitheconomicgrowthSomecostsarearesultofexternalitieswhichoccurduetoeconomicgrowthEconomistsfocusontheideaofeconomicgrowthasbeingsustainablewhichmeansitcancontinueoverthelongterm TheCostsofEconomicGrowth Economicgrowthcausescostsfortheeconomy Inflationrisks eitherdemand pullorcost pushTheenvironment asoutputincreasesnegativeexternalitiescanincreasee g pollutionRegionaldisparitiesordifferences CanleadtogreaterdifferencesbetweenrichandpoorInequalitiesofincomeandwealth thesecan BenefitsofEconomicGrowth EconomicgrowthhasanacceleratoreffectoncapitalinvestmentIncreasestaxationforthegovernmentEnvironmentalbenefits iftheeconomyisgrowingthereismoremoneytoinvestincleanertechnologiestherebyreducingpollution TheBenefitsofEconomicGrowth Economicgrowthhasanumberofbenefits Improvementtolivingstandardsandlowerratesofpoverty especiallyindevelopingcountriesFallinglevelsofunemployment Economicgrowthstimulateslevelsofemployment SustainabilityofEconomicGrowth Theaimformostecon