...What causes economic growth in the LR? The Long run trend rate of economic growth measures the average sustainable rate of economic growth over a period of time. The Long Run trend rate will depend upon the growth of productive capacity in the economy and therefore the growth of LRAS. The below diagram shows an increase in LRAS and therefore an increase in potential growth: Diagram: Long Run Economic Growth The growth of potential output could increase due to 2 main factors: * 1. An increase in resources land, labour and capital * 2. An increase in the efficiency of these resources i.e. improved labour or capital productivity. Firstly if there is improved technology, e.g if robots were used more effectively in factories, this will enable higher output and lower costs. An important factor is labour productivity; if there is improved education and training then workers will be more productive and this will increase the LRAS. If the country had an increase in Raw materials e.g. finding a new source of oil this would increase LRAS. Also, if there is an increase Capital, such as, investment in new factories and machines LRAS will increase. The growth rate could increase if there was an increase in the size of the labour force. This could caused by higher population growth or an increase in the participation rate. The Long run trend rate could be increased by successful government supply side policies. Supply side policies attempt to increase productivity in...
Words: 327 - Pages: 2
...“To what extent was rapid economic growth the cause of social tensions in Wilhelmine Germany?” In Wilhelmine Germany, an industrial revolution was taking place. By 1910, Germany had almost caught up with Britain on the production of industries such as coal and steel, with the rate of growth overwhelmingly surpassing that of the Britons. Germany was also home to new industries, like that of chemicals, which quickly saw 90% of the world’s hair dye exported from Germany alone. However, the impact of a healthy economy was not entirely positive. Rapid economic growth brought an increase in class divisions, as the traditional system came under threat as a result of changing methods. Further, the industrial revolution saw urbanisation become a growing trend as people relocated to the job-filled cities; nonetheless, overcrowding saw a fall in living conditions and a rise in discontent with the working environment, leading to increased membership in trade unions. Moreover, pressure groups began to emerge as funding became readily available and confidence grew among the prosperous public. Although rapid economic growth was the main cause of social tensions in Wilhelmine Germany, the Constitution’s failure to establish the role of the Army led to anger among the public who felt as if they were being ignored by the Kaiser and the Chancellor. In addition, the increased following of socialism caused tensions between the traditional, conservative side of Germany, and those who felt change...
Words: 1933 - Pages: 8
...Consumer Confidence and Economic Growth Introduction: Consumer confidence is a key driver of economic growth. It is widely considered an economic indicator of household consumption expenditure. Consumers tend to increase consumption when they feel confident about the current and future economic situation of the country and their own financial situation. In economies such as India and the US where personal consumption represents 66% and 71% of GDP respectively, consumer confidence has a particularly significant impact on the economy and can provide critical insight into its growth prospects. In simple terms, increased consumer confidence indicates economic growth in which consumers are spending money, indicating higher consumption. Decreasing consumer confidence implies slowing economic growth, and so consumers are likely to decrease their spending. The idea is that the more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases. Declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble. This study examined the causal link between consumer confidence and economic growth in United States. Some economists, such as Langer (1991), are of the view that consumer confidence can reliably predict future consumer spending and thus, economic growth, while others are more skeptical arguing that “consumers cannot spend confidence” Lieberman (1991). Consumer confidence...
Words: 1716 - Pages: 7
...ELECTRICITY CONSUMPTION AND ECONOMIC GROWTH IN NIGERIA: NEW INSIGHTS INTO THE CAUSALITY RELATIONSHIP AN ECONOMETRICS ASSIGNMENT SUBMITTED BY ------------------------------------------------- OLUWAFEMI JOSHUA IBRAHIM MATRIC NUMBER: 121937 LEVEL: 700 LECTURER IN-CHARGE: PROFESSOR E.O. OGUNKOLA November, 2010 1) STATEMENT OF THE PROBLEM Electricity plays a very important role in the socio-economic and technological development of every nation. It is widely accepted that there is a strong correlation between socio-economic development and the availability of electricity (Sambo, 2008). It is generally recognized that energy, including electricity, plays a significant role in economic development, not only because it enhances the productivity of capital , labour and other factors of production, but also that increased consumption, particularly commercial energy like electricity, signifies high economic status of a country(Aklas & Yilmaz, 2008). The relationship that exists between electricity consumption and economic growth has been of great interest to many researchers. The study of this relationship arises from the need to understand the complex links between these variables. Such understanding is basic to regulators and investors in deregulated electricity markets, in order to design a system that is reliable, efficient and growth-efficient. The empirical argument has been centered on whether economic growth responds to increase in electricity consumption, or whether...
Words: 4241 - Pages: 17
...Economic development is the increase in the standard of living of a population. Economic development includes economic growth among the main criteria. Economic growth is a sustained growth from a simple economy to a modern one. The study of economic development includes theories of the causes, the process, and the policies by which a nation improves the economic, political, and social well-being of its people. Economic development theories relate to the causes of industrial-economic modernization, the phases of economic development, and the organizational related aspects of enterprise development; it requires sociological, economic, and cultural researches on the evolution of markets and industrial organizations within modern societies. From other perspectives, economic development of embrace improvements in a variety of indicators such as literacy rates, life expectancy, poverty rates, health, and education. In fact, these indicators are more related to economic growth so that development goes often with growth. Scientists often argue that poor countries and mainly “third-world countries” have experienced very fast economic growth with barely little economic development and especially during the periods where they served as resource providers for industrialized countries. Other economists claim that economic growth causes or contributes to economic development, because according to this perspective, because at least some of the increasing income is spend on human sustainable...
Words: 1697 - Pages: 7
...literature review discusses objectives of financial development and economic growth as well as existing relationship of this concept. Financial development is strongly connected with economic situation, but we do not know for sure if this always implies economic growth. There are many factors which influence relationship between financial development and economic growth and its effects such as financial liberalization, government ownership of the banks, monetary policy and rate of inflation, institutional and regulatory framework of financial markets in particular countries. Many researchers are trying to give the right questions and explanations on this field but still there are unresolved issues and implications which give open space for future investigations. Table of Contents 1. Introduction………………………………………………………….2 2. Literature Review……………………………………………………2 2.1. Relationship between Financial Development and Economic Growth………2 2.2. Empirical methodologies……………………………………………………..5 2.3. Effects of Merger and Acquisitions in Bank Industry on relationship between financial development and economic growth…………………………………7 3. Conclusion…………………………………………………………....8 4. Reference List………………………………………………………..9 1. Introduction Financial system is a basis of current economic trends and there is no possibility of doing businesses and...
Words: 2803 - Pages: 12
...the extent to which economic growth may benefit an economy. (18) Economic growth is an increase in the output that an economy produces over time, for the minimum of two consecutive quarters. Economic growth can benefit an economy in a number of ways. Firstly, higher average incomes, this allows consumers to enjoy more goods and services and enjoy better standards of living. This in turn could lead to the ‘Trickle Down’ effect, those who are the highest income earners spending their disposable income on goods and services in the economy, those lower income earners could benefit from this as that money gets filtered through all sections of the economy. Therefore, many people in the economy will benefit from an increase in average income even if it is only the higher income earner who actually receive the increase. Secondly, economic growth can benefit an economy through lower unemployment, as the economy has an increase in real GDP and positive economic growth, firms will be producing more as they will be receiving a greater demand for the good and services they produce. As a result, firms will need to employ more workers in order to meet the new levels of demand. As labour is derived demand, this means that when the demand for goods and services increases, so does the demand for labour, this results in an increase in employment and reducing poverty. Another way in which economic growth can benefit an economy is lower government borrowing. Economic growth generates higher tax...
Words: 783 - Pages: 4
...International Journal of Energy Economics and Policy Vol. 3, No. 4, 2013, pp.360-366 ISSN: 2146-4553 www.econjournals.com Effects of Oil Price Shocks on the Economic Sectors in Malaysia Mohd Shahidan Shaari School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia. Email: shahidanshaari@unimap.edu.my Tan Lee Pei School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia. Email: pui_tlp@yahoo.com Hafizah Abdul Rahim School of Business Innovation and Technopreneurship, Universiti Malaysia Perlis, Malaysia. Email: hafizahrahim@unimap.edu.my ABSTRACT: This paper aims to examine the effects of oil price shocks on economic sectors in Malaysia. A unit root test was conducted, in which data were shown to be non-stationary in all levels, and stationary in the first difference for all variables. The co-integration model was applied, and the results indicated that one co-integrating equation exists, suggesting the long-term effects of oil prices on the agriculture, construction, manufacturing, and transportation sectors. Finally, Grange causality test was performed, and the results implied that in Malaysia, oil price shocks can affect agriculture, similar to Hanson et al. (2010). Oil price instability also influences the performance of the agriculture sector, contrary to the results of Alper and Torul (2009). In addition, the construction sector was found to be dependent on oil prices. Therefore, the current study has...
Words: 3901 - Pages: 16
...Poverty in the Philippines: Causes, Constraints and Opportunities Poverty and inequality in the Philippines remains a challenge. In the past four decades, the proportion of households living below the official poverty line has declined slowly and unevenly and poverty reduction has been much slow. Economic growth has gone through boom and bust cycles, and recent episodes of moderate economic expansion have had limited impact on the poor. Great inequality across income brackets, regions, and sectors, as well as unmanaged population growth, are considered some of the key factors constraining poverty reduction efforts. Causes of Poverty The main causes of poverty in the country include the following: * low to moderate economic growth for the past 40 years; * low growth elasticity of poverty reduction; * weakness in employment generation and the quality of jobs generated; * failure to fully develop the agriculture sector; * high inflation during crisis periods; * high levels of population growth; * high and persistent levels of inequality (incomes and assets), which dampen the positive impacts of economic expansion; and * recurrent shocks and exposure to risks such as economic crisis, conflicts, natural disasters,and "environmental poverty." Key Findings The report's key findings include the following: * Economic growth did not translate into poverty reduction in recent years; * Poverty levels vary greatly by regions; * Poverty remains...
Words: 376 - Pages: 2
...International Conference On Applied Economics – ICOAE 2010 299 DOES STOCK MARKET DEVELOPMENT CAUSE ECONOMIC GROWTH? A TIME SERIES ANALYSIS FOR BANGLADESH ECONOMY MD. SHARIF HOSSAIN (PH. D.)1 - KHND. MD. MOSTAFA KAMAL2 Abstract In this paper the principal purpose has been made to investigate the causal relationship between stock market development and economic growth in Bangladesh. To investigate long-run causal linkages between stock market development and economic growth the Engle-Granger causality and ML tests are applied. In this paper another attempt has been made to investigate the non-stationarity in the series of stock market development and economic growth by using modern econometric techniques. The co-integrated tests are applied to know whether this pair of variables shares the same stochastic trend or not. From our analysis it has been found that the stock market development strongly influences the economic growth in Bangladesh economy, but there is no causation from economic growth to stock market development. Thus unidirectional causality has prevailed between stock market development and economic growth in the Bangladesh economy. Also it has been found that all the variables are integrated of order 1, and both the variables stock market development and economic growth share the same stochastic trend in Bangladesh economy. JEL Code: C010 Key Words: Stock Market Development, Causal Relationship, Non-stationarity, Unit Root Test, Co-integrated Tests 1 ...
Words: 5712 - Pages: 23
...There are three major economic problems in our economy. They consist of economic growth, unemployment rates, and inflation. In the midst of this project, I will touch on all three of these major concepts. First let me start off with economic growth. The definition of economic growth is an increase in the amount of goods and services produced per head of the population over a period of time. So in reality this means “an increase in capital stocks, event is in technology, and improvement in the quality and level of literacy Are considered to be the principal cause of economic growth.” (1) Economic growth can be measured in two ways, by an increase in real GDP over appeared of time and an increase in real GDP per capita over sometime period. According to my macroeconomics book, the real GDP for the United States in 2011 was around $15,052.4 billion and $15,470.0 billion in 2012, which means economic growth rate for 2007, was 2.8%. Usually growth rates are positive, but they don’t always have to be, for example in 2009 the US growth rate was a -2.4%, which means a decrease in the country’s gross domestic product (GDP) during any given year. Let’s talk about modern economic growth, modern economic growth is defined as “sustaining an ongoing increases in living standards that can cause dramatic increases...
Words: 1336 - Pages: 6
...An Analysis : Inflation and Growth Submitted By: Omkar Athalekar Parag Sapkal Sudipto Sur Tushar Nayanam Inflation What is Inflation? Inflation can be defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every unit of currency one owns buys a smaller percentage of goods and services. How is inflation measured? Measuring inflation is a difficult problem even for government statisticians. To do this, a number of goods that are representative of the economy are put together in what is referred to as a “Market Basket”. The Cost of this basket is then compared over time. This results in a price index, which is the cost of the market basket today as a percentage of the cost of that identical basket in the base year. The index number is a single figure that shows how the whole set of related variables has changed over time or from one place to another. In particular, a price index reflects the overall change in a set of prices paid by a consumer or a producer. Different countries use different indices, some of the common ones are : Consumer Price Index : The CPI measures price change from the perspective of the retail buyer. It is designed to measure changes in the level of retail prices of selected goods and services on which consumers of a defined group spend their income. Wholesale Price Index : WPI represents the price of goods at a wholesale stage i.e. goods...
Words: 959 - Pages: 4
...How is public debt related to economic growth and unemployment? In this project different economic factors will be compared with each other to see if any correlations exist between them. These will perhaps explain certain trends and changes we see. The three factors focused on in this report are GDP growth, Government Debt and Budget surplus/deficit. In the data provided there is a very large standard deviation for GDP (see appendix). In both 2009 and 2010 the standard deviation was over four and a half times larger than the average of GDP itself. This will make it hard to create general assumptions for all countries to assess whether different factors correlate with each other. Even other factors such as GDP growth have relatively large standard deviations. This may cause difficulties in examining factors. An example of ambiguous data can be seen when comparing Canada and India. They both had fairly similar GDP and debt figures in 2010 but India’s GDP growth was around three times that of Canada’s. This shows that we cannot make hard-and-fast rules on links between different factors but we may be able to make general connections and assumptions. Distribution of GDP Growth and Government Debt within countries Figure 1: GDP Growth (2009-2010) 60 50 Number of Countries 40 30 20 10 0 Frequency GDP Growth 2009-2010 (% change) As we can see from Figure 1 distribution of GDP growth is relatively small, with 93.4% (171/183) countries having a growth between 0% and 10%. If we then...
Words: 1402 - Pages: 6
...Is Economic Growth Always Desirable When using the Keynesianism theory of aggregate supply and aggregate demand, economic can be both desirable and undesirable. Firstly, economic growth at its most basic level increases GDP and employment. If consumers are spending more money, whether it is by increased consumer confidence, lower interest rates or rise in house prices, companies usually see increased profits. As a result, they are more likely to invest in their business and expand its capacities. This, not only adds to economic growth, but also creates employment and further adds to GDP. This shifts the aggregate demand curve (AD) from AD1 to AD2 as per the diagram. This doesn’t affect inflation as prices stay the same, yet GDP and employment increase. For example, in the early 90s in the UK, employment was at 25 million, whereas 13 years later it was at 29 million, with low unemployment figures. Quality of life also increases with economic growth. When the employed are earning more money and see their wages rise, they have more expendable income. These people no longer are spending to live, but are living to spend. Luxury goods and services are consumed, house prices rise, and government services also improve. These all improve the quality of life for consumers and the employed alike. It also increases the number of people who are living in poverty. For example in 1990 34% of people were living on under $1 a day, whereas in 2002 it was 22%. This was largely due to the...
Words: 702 - Pages: 3
...Executive summary In this empirical report, we have analyze the characteristics of several important economics indicators and how they can be use by economist to look out for period of inflation, sharp changes in GDP growth due to GST and oil shock and how to make use of this indicators to do a projection on the economy performance. We also come to understand how different types of economic indicators are used and how they correspond to the movement economy activities. Understanding the characteristic of these economic indicators, allows us to identify the cyclical nature of each individual indicator with economic growth and, thus, help us in choosing a set of economic indicators for forecasting the economic performance. To conclude, we state that by doing an economic indicator analysis through leading, coincident and lagging indexes, we can understand how well the economy performance as a whole. It also tells us the relationship between economy performance and the policy-making of a country. Introduction The measurement and analysis of business cycles has been one of the important research topics in economics and underlying theories of these economics arguments have changed as times goes by. In this empirical report, attention will be focus into the central questions on the causes of fluctuation in the economic activity by constructing a business cycle analysis and composite coincident index, a combination of several time series that one would expect to contain...
Words: 3409 - Pages: 14
