IB Economics Topic 3.3.8 High Economic Growth Revision Notes (SL/HL)

IB Economics Topic 3.3.8 High Economic Growth Revision Notes (SL/HL) | RevisionDojo

Written by official IB examiners

Economic growth is a key macroeconomic objective, but it must be balanced against other goals, because pushing one target too hard can undermine the others.
High growth brings many benefits, such as higher incomes and more jobs, but it can also conflict with other economic objectives, so policymakers have to weigh the gains against the costs.

Note

High economic growth is typically defined as rates above the long-term average: about 2 to 3% for developed economies and 5 to 6% for developing economies.

High Economic Growth and Low Inflation

The relationship between growth and inflation is one of the most important trade-offs in macroeconomic management, because faster growth can push up the price level and force a policy conflict between raising output and keeping prices stable.

Rapid economic growth can lead to demand-pull inflation when:

Aggregate demand grows faster than productive capacity, so buyers compete for a limited supply of goods and firms respond by raising prices rather than output.
The economy operates near full capacity, so there is little spare labour or spare plant left to meet extra demand and the pressure spills into higher prices.

Cost-push inflation may also arise during rapid growth because:

Resource constraints and supply bottlenecks appear as firms strain to expand quickly, so input costs rise and producers pass those higher costs on as higher prices.
Wages rise as strong labour demand outstrips the supply of workers, so firms bid up pay to hire and retain staff and higher wage costs feed through into prices.

Example

China's rapid growth in the 2000s averaged about 10% a year, but was accompanied by inflation peaks of 8% in 2008 and 6.5% in 2011.
This shows the challenge of holding price stability during high growth, because demand ran ahead of what the economy could supply.

Policy measures to keep prices stable while pursuing growth include:

Supply-side policies expand productive capacity, so aggregate supply can keep pace with rising demand and growth is delivered without pushing up the price level.

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Note

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Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
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Economic growth is a key macroeconomic objective, but it must be balanced against other goals, because pushing one target too hard can undermine the others.
High growth brings many benefits, such as higher incomes and more jobs, but it can also conflict with other economic objectives, so policymakers have to weigh the gains against the costs.

Note

High economic growth is typically defined as rates above the long-term average: about 2 to 3% for developed economies and 5 to 6% for developing economies.

High Economic Growth and Low Inflation

Rapid economic growth can lead to demand-pull inflation when:

Aggregate demand grows faster than productive capacity, so buyers compete for a limited supply of goods and firms respond by raising prices rather than output.
The economy operates near full capacity, so there is little spare labour or spare plant left to meet extra demand and the pressure spills into higher prices.

Cost-push inflation may also arise during rapid growth because:

Resource constraints and supply bottlenecks appear as firms strain to expand quickly, so input costs rise and producers pass those higher costs on as higher prices.
Wages rise as strong labour demand outstrips the supply of workers, so firms bid up pay to hire and retain staff and higher wage costs feed through into prices.

Example

China's rapid growth in the 2000s averaged about 10% a year, but was accompanied by inflation peaks of 8% in 2008 and 6.5% in 2011.
This shows the challenge of holding price stability during high growth, because demand ran ahead of what the economy could supply.

Policy measures to keep prices stable while pursuing growth include:

Supply-side policies expand productive capacity, so aggregate supply can keep pace with rising demand and growth is delivered without pushing up the price level.

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 3.3.8 High Economic Growth Notes

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

High Economic Growth and Low Inflation

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

High Economic Growth and Low Inflation

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account