Transcript Economic Growth: UK Current Perspectives

Economic Growth: UK Current
Perspectives
Lesson objectives
•Show an awareness of the recent
performance of the UK economy
•Distinguish between short-run and long-run
economic growth
•Analyse short-run and long-run economic
growth using diagrams
•Evaluate the causes and consequences of
economic growth
Starter
•Read the newspaper article on the latest
economic growth figures
•What are the factors driving or hindering
growth?
•Use the force field model to assess the factors
Key terms
•Real GDP growth
•Inflation
•Balance of payments
•Unemployment
•Standard of living
•Short-run economic growth
•Long-run economic growth
•Output gap
•Spare capacity
Economic Growth in the Short Run
Economic Growth in the Long Run
Economic Growth in the Long Run
Capital Goods
B
K2
A
K1
C1
C2
Country operating at full
capacity but discovers new
resources or find ways of
improving the efficiency of
existing resources, for example,
education of the population to
improve the quality of human
capital.
Consumer Goods
Scenarios
•Depreciating capital is not replaced
LRAS shifts left
•Tighter monetary policy
AD shifts left
•An improvement in technology
LRAS shifts right
•Interest rates fall
AD shifts right
•The exchange rate rises
AD shifts left
Scenarios
•The government cuts the rate of VAT
AD shifts right
•Business and consumer confidence improves
AD shifts right
•Government spending on benefits cut
AD shifts left
•Training improves labour productivity
LRAS shifts right
Positive vs. negative aspects of economic
growth
The class will be split into two teams
One side will look at the positive aspects of
Economic Growth and the other at the negative
aspects of Economic Growth
A team leader will be appointed for each team.
Positive vs. negative consequences of
economic growth
Each team leader must divide up the positive or negative
consequences of economic growth to the individuals in their team.
Each individual must ensure they (a) can explain the consequence
they have been given, (b) can explain any further consequences that
may arise (c) and assess the significance in terms of total economic
growth
The team leader must ensure that each member of their team’s
explanation is sound and then the individual must write the
explanation down in 30 words or less.
You have 10 minutes in total to complete this part of the activity.
Positive vs. negative consequences of
economic growth
Each individual within the team must be confident enough to explain their
positive or negative aspect to the rest of their team.
The team leader must ensure that the individual has explained their aspect
clearly.
Once an individual has explained their aspect to the team, the team must
write it down in their own words on their worksheet. If any members of the
team are confused they must ask the individual to clarify.
You have 6 minutes in total to complete this part of the activity
Positive vs. negative consequences of economic
growth
Each individual within the team must be confident enough to explain their positive
or negative aspect to another member of the class.
This is a challenge between the two teams, once an individual has explained their
aspect to the opposition the opposition must repeat what the aspect is and then
write down the title and description in their own words on their paper.
Individuals are not to show the other person their worksheet, and will be
penalised if any copying occurs.
You will get 2 minutes with each other to exchange positive/negative aspects of
economic growth. You will continue until you have completed your worksheet.
You have 8 minutes in total to complete this part of the activity
Positive consequences of economic growth –
Lulu - Team Leader
1.
2.
3.
4.
5.
6.
Higher standards of living
Foreign direct investment (FDI)
Consumer confidence
Increased tax revenues
Less unemployment
Improved welfare support
Emily, Iqrah, Amrita, Yolanda, Zainab
Negative consequences of economic growth
Clemmie – Team leader
1.
2.
3.
4.
5.
6.
7.
Inflation
Externalities of growth
North/South Divide
Increase in crime and social problems
More hours spent at work
Diseases of affluence – e.g. diabetes
Current account deficit worsening
Latoya, Grace, Eemaan, May, Omara, Aneek
Consequence of
economic growth
Inflation
North/South Divide
Increase in crime and
social problems
More hours spent at work
Diseases of affluence –
e.g. diabetes
Current account deficit
worsening
Externalities of growth
Analysis
Evaluation – how
significant is this
factor?
Consequence of
economic growth
Higher standards of living
Foreign direct investment
(FDI)
Consumer confidence
Improved welfare support
Less unemployment
Increased tax revenues
Analysis
Evaluation – how
significant is this
factor?
Create a mind map of how the government
encourages economic growth
How does the government
encourage economic
growth?
• Hint How do they manipulate the components of AD to increase
growth? How do they improve the supply of the economy in the
LR?
Exam Question
•Evaluate whether the benefits of economic
growth outweigh the costs
Summary
•What is economic growth?
•How would you illustrate economic growth in
the SR? and the LR?
•Give three reasons why economic growth is
an important government objective……
Challenge – how many connectives can you use?
AD and “rebalancing”
C + I + G + (X-M)
Proportion of GDP
66%
10%
26%
29%
31%
Contribution to GDP growth in 2014
2.1%
6.8%
1.5%
0.4%
2.6%
Current data
•
•
•
•
UK on course to grow by 2.6% in 2015
Q3 growth was estimated to be 0.7% up from 0.4% in Q2
GDP per capita has recovered to its pre crisis 2008 peak
UK economy has now experienced 10 quarters of economic
growth
• Services grew by 0.7%, manufacturing declined by 0.2%,
construction experienced no growth
AD-AS Analysis: the output gap?
Consumption
• Confidence
• Deleveraging (reducing debt by selling assets) and
monetary policy
• Pay settlements and cost of living (3.3% salary
increases)
Investment
•
•
•
•
Confidence and holding cash reserves
Access to credit
Accelerator impact
Global uncertainty: EU referendum, China
"If we don’t deal with this [the deficit], there will be no growth, there will be no
recovery. It will be undercut by rising interest rates, rising inflation, falling
confidence and the prospect of higher taxes...So on 22nd June, we will have an
emergency Budget, setting out how we will cut the bulk of our deficit over the
course of this Parliament, giving this country what it has been desperately lacking
– a credible plan to live within its means.“
David Cameron 2010
Government Expenditure
•
•
•
Deficit reduction
Automatic stabilisers
Weak growth
• Demand from abroad
• Productivity gap
• Exchange rate
A balanced UK economy?
Long term threats to UK growth
(Institute of Economic Affairs)
• Increased public spending and taxation as a proportion of GDP due to
the rapid increase in the early twenty-first century. This factor alone
has reduced the sustainable growth rate by around 0.5 per cent –
possibly more
• Increased government, corporate and household debt relative to GDP
• Demographic pressures from an ageing population
• Increased regulation of the energy and financial services sectors.
These sectors had contributed substantially to the productivity
performance of the economy in earlier decades
• The depletion of North Sea oil
• The arithmetical affect of low-productivity immigrant workers being
added to the working population
• The huge growth in credit before the crisis, followed by its contraction
since – partly driven by increased banking regulation
Current perspectives
http://www.bbc.co.uk/news/business-33686358
http://www.telegraph.co.uk/finance/economics/11452004/Briti
sh-productivity-is-a-national-disgrace.html
http://www.telegraph.co.uk/finance/economics/11851629/Unb
alanced-but-lucky-Britain-hits-an-economic-sweet-spot.html
http://www.telegraph.co.uk/finance/newsbysector/industry/en
gineering/11424693/Is-the-march-of-the-makers-rebalancingthe-economy.html