Economic Growth

Economic growth measures how much the income of an economy is growing over time (Gillespie, 2016, p.340). This happens because the increasing amount of income in the economy will provide better standards of living and affordability of purchasing products to people. This essay will explain the types and effects of economic growth, and also discuss how education is the main cause of regional imbalance between north and south of England and how will the government of UK should solve this particular issue.

Gross domestic product (GDP) is the best way to measure economics growth (Amadeo, 2018). This includes all goods and services that businesses in the country produce for sale. It doesn’t matter whether they are sold domestically or overseas. GDP also refers to the economic value of goods and services produced within the nation’s boundaries. When GDP is estimated at current prices, it exhibits nominal GDP, whereas real GDP is when the estimation is made at constant prices (Investopedia, n.d.).

                                                                        Source: Surbhi (2015)

A business cycle is a cycle of fluctuations in the GDP around its long-term natural growth rate (Corporate Finance Institute, n.d.).

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                                                      Source: Business Case Studies (n.d.)

The output gap is the difference between the actual level of national output and the estimated potential level and is usually expressed as a percentage of the level of potential output. Positive output gap is when aggregate demand is greater than aggregate supply. It is associated with countries where an economy is over-heating because of fast and rising demand. When there is a positive output gap, it may cause inflation which is affected by the rise in price of the product, the unemployment rate will be low, while the import will be high. The main problem is likely to be an acceleration of demand-pull and cost-push inflation. Negative output gap is when aggregate demand is lower than aggregate supply. Some factor resources, such as labour and capital machinery are under-utilized, and the difficulty is likely to be higher than average unemployment. An increasing number of people out of work indicate an excess supply of labour, which then causes pressure on real wage rates (Riley, 2012).

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                                                         Source: Higher Rock Edu (n.d.)

Demand and supply side shocks can lead to instability in the economy. For the demand side shocks, it can include a significant rise or fall in the exchange rates in short-term, changes in aggregate demand will be affected, and also a boom in the capital expenditure. While for the supply side shocks affect the costs and prices of the supply, involving the development of technology, natural disasters, and political situations that will impact and influence the supply of the goods or products (Revisionworld, n.d.).

The long run aggregate supply curve relates the level of output produced by firms to the price level in the long run (Economics Online, n.d.).

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