Macroeconomics Aims Notes

H2 Economics Chapter 7, 8, 9, 10 and 14 Notes This document is intended as a study guide to provide a structure for studying the Chapter 7, 8, 9, 10 and 14 Notes. 1 Economic Growth 1.1 Desirable Economic Growth Governments aim for high economic growth in order to increase the standard of living (SOL) of their country. Recall that improving SOL is the singular most important part of macroeconomics. Hence, economic growth is also sometimes considered as the primary macroeconomic aim. Economic Growth is an increase in the real national output of a country over a period of time. Actual Growth is the percentage annual increase in real national output actually produced. Potential Growth is the rate of growth of full employment output and capacity of the economy to produce goods and services. Economic Growth = (Real GDP year 1 - Real GDP year 0 ) / Real GDP year 0 Will this be able to continue after a long period of time? Consider an economy experiencing a continuous increase in real national output without any increases in productive capacity. After a long period of time, the economy will be producing at its productive capacity, meaning that there can no longer be economic growth. To allow for further growth, the government aims to achieve Sustained Economic Growth. Sustained Growth is economic growth with low inflation for a long period of time. This can be achieved when actual economic growth caused by an increase in AD 1 is slightly faster than the potential economic growth caused by an increase in LRAS. 1 Actual Growth can be achieved via an increase in SRAS. However, it is typically achieved when AD increases. 1

H2 Economics 2024 Chapter 7/8/9/10/14 Sustained Growth allows the government to continue to increase national output over a long period of time since the productive capacity of the economy continues to increase, allowing for future increases in the production of output. Will this be able to continue forever? This is not the best possible outcome. Governments aim for high economic growth as it causes a continual increase in SOL. However, since production results in negative externalities which decrease non-material SOL to increase material SOL, future generations will be subjected to the negative effects of global warming, air pollution and other phenomena which damage the environment, decreasing their SOL. Hence, governments aim for Sustainable Economic Growth. Sustainable Gr