Difference Between Positive And Negative Economic Growth

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Economic growth is defined as an increase in the output that an economy produces over a period of time, the minimum being two consecutive quarters. It is an increase in what an economy can produce if it is using all its scarce resources and at its full potential. An increase in an economy’s productive potential can be shown by an outward shift in the economy’s production possibility frontier (PPF).
It is conventionally measured as the percent rate of increase in real gross domestic product (GDP) . GDP is the market value of all the final goods and services produced within in a country in a given time period. Aggregate expenditure: consumer spending (C) plus investment by firms (I) plus government spending (G) plus net exports (X-M) equals …show more content…

GDP does not take into account the sustainability of future GDP.
2. GDP does not take into account the value of non-monetized activity.
3. GDP does not differentiate between more or less productive economic activities. (i.e. implicitly assumes that economic activity is the desirable ends rather than a means to an …show more content…

Positive economic growth is represented by a shift to the right of the AS curve. Equally, negative economic growth decreases the natural level of real GDP, causing the AS curve to shift to the left. The diagram below shows New Zealand GDP growth rate and inflation rate. Typically, higher inflation is caused by economic growth. If AD expands faster than AS, a higher inflation rate will be expected. If AD is rising faster than AS, economic growth is higher than the long run sustainable rate of growth. Global crude oil prices have plunged to a five-year low. The impact on inflation, financial markets, and the economy will be profound. AS curved will shift to AS1. Lower global oil prices will reduce New Zealand inflation directly via petrol prices, and indirectly by reducing costs for many businesses (i.e. couriers and taxis). It now looks likely that inflation will drop and remain below one percent for a whole year. The Reserve Bank is more likely to tighten macro-prudential policy than loosen it over the year ahead. The report upgraded GDP forecast for 2015, to 3.4%. The New Zealand dollar may fall further against the US dollar, but will remain strong against other currencies including the Australian dollar.

Professor Paul Collier has argued, “ Economic growth is not a cure-all; but the absence of growth is a kill-all”. Economic growth can cause a few problems. Economic growth is

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