Explain the causes of economic growth in terms of an increase in actual output and an increase in potential output.

Discuss the view that the consequences of economic growth are always beneficial.

Answers may include:

• definitions of economic growth, actual output and potential output
• diagram(s) to show an increase in actual output (a movement from a point within to a point closer to the PPC or an increase in AD); and an increase in potential output (shift of the PPC outwards or an increase in LRAS)
• explanation of an increase in actual output through changes in AD and an increase in potential output through changes in LRAS
• examples of the two different types of growth.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definition of economic growth
• diagram(s) to show the show the consequences of growth could include AD/AS and negative externality diagrams
• explanation of the different consequences of growth including the impact on living standards, unemployment, inflation, the distribution of income, the current account of the balance of payments, environmental consequences and sustainability
• examples of such consequences in practice
• synthesis or evaluation (discuss).

Discussion may include: a consideration that growth is “always” beneficial, the overall costs of growth in relation to its overall benefits, the costs and benefits of growth in terms of the nature of goods produced, how growth might widen the distribution of income, short-term versus long-term consequences of growth and the link between growth and development.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.