Economic Growth And The Business Cycle

Last updated May 26, 2023 Edit

• Business

• Economic activity and economic growth are measured by GDP (Gross Domestic Product)
  • The market value of all goods and services produced within a country.

• Interest rates set by the central bank
• Fiscal policy – government spending and taxation
• Commodity prices such as oil, gas and foodstuffs
• Exchange rates
• Trading conditions in other countries
• Confidence of businesses and households

• High rates of GDP growth can bring about undesirable economic and social costs - much depends on the nature of growth

• Risks of higher inflation and higher interest rates

  • Fast-growing demand can lead to demand-pull and cost-push inflation - this leads to a conflict between macro objectives
  • The central bank may decide to raise interest rates to control inflation

• Environmental effects

  • More negative externalities such as pollution & waste
  • Risk of unsustainable extraction of finite resources - ie, fast growing countries may cause a long-run depletion of natural resources

• Inequalities of income and wealth

  • Rapid increases in real national income can lead to a higher level of inequality and social divisions
  • Many of the gains from growth may go to only a few people

Business