How does actual economic growth differ to potential economic growth?

Actual economic growth can also be known as demand side economic growth because it is affected by changes in the demand in an economy.  It is an increase in output as measured by real GDP/ national income. It can be achieved by shifting AD (Aggregate demand)  to the right by increasing AD, by influencing any of the factors of aggregate demand. (As shown below) 

•Consumption

•Government Spending

•Net Exports

* Investment (However this is also a component of LRAS)

On the other hand potential economic growth deals with the supply side of the economy. It is an increase in the productive capacity (potential). An increase in the short term/long term aggregate supply will cause potential economic growth. The short term deals with costs of production and the long term is affected by changes in the quality and quantity of the factors of production. 

SW
Answered by Sophie W. Economics tutor

33808 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

How can I show the impact of a NMW on employment using a supply and demand graph?


How can get my essays into level 5?


Explain the 2 ways in which a reduction in interest rates can change consumption in the aggregate demand model of the economy.


Explain fiscal policy and how it can be used


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning