What are the causes and consequences of economic growth?

Economic growth occurs when an economy's real GDP increases over time. It can be driven by demand-side factors — such as rising consumer spending or government investment — or supply-side factors, including improvements in technology and increases in the size or productivity of the labour force.

In AD/AS analysis, short-run growth is shown by a rightward shift in AD, whilst long-run growth shifts the LRAS curve outward. On a PPF diagram, long-run growth shifts the entire frontier outward, reflecting an expansion in productive capacity rather than simply using existing resources more fully.

The UK's post-2008 recovery illustrates that growth is not always straightforward — slow productivity growth kept LRAS relatively static, meaning GDP recovery relied heavily on AD stimulus. This distinction between actual and potential growth is frequently tested.

1. →(4 marks) Explain what is meant by the difference between actual and potential economic growth.
2. →(8 marks) Explain two causes of long-run economic growth.
3. →(12 marks) Analyse how an increase in government investment might lead to economic growth, using an AD/AS diagram.
4. →(20 marks) Evaluate the view that economic growth always improves living standards in the UK.
5. →(25 marks) "The negative consequences of economic growth outweigh the positive consequences." Evaluate this view.

• →Always define economic growth in your opening sentence as an increase in real GDP over time, distinguishing between actual and potential growth where possible.
• →Include a correctly labelled AD/AS or PPF diagram in any 12-mark or above question — unlabelled axes or missing arrows will lose you marks.
• →Avoid treating all economic growth as automatically beneficial; examiners reward candidates who acknowledge inequality, environmental costs, and the sustainability of growth.
• →Show awareness that the type of growth matters — demand-led growth driven by consumer borrowing is less sustainable than investment-led or export-led growth.
• →Define the difference between short-run and long-run economic growth when analysing causes, as conflating the two is one of the most common errors examiners penalise.

Economic Growth: An increase in a country's real GDP over a given time period, reflecting a rise in the output of goods and services.

Actual Growth: The increase in real GDP achieved by bringing previously unemployed or underemployed resources into use, shown by movement towards the PPF.

Potential Growth: An increase in the productive capacity of an economy, represented by an outward shift of the LRAS curve or the PPF.

Labour Productivity: The output produced per worker per hour, a key supply-side driver of long-run economic growth.

Aggregate Demand (AD): The total demand for goods and services in an economy at a given price level, comprising consumption, investment, government spending, and net exports.

Sustainable Growth: Economic growth that meets present needs without compromising the ability of future generations to meet their own, often associated with low inflation, manageable debt, and limited environmental damage.