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

32555 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is the deadweight loss of a tax and how do I calculate it?


Explain the difference between the Monetarist and Keynesian views of unemployment


How is unemployment related to causes of inflation?


Discuss the perfect competition model?


We're here to help

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

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences