What makes an economy grow, and is growth always good?
What economic growth is, the causes of growth, the stages of the economic cycle, and the benefits and costs of economic growth.
A focused answer for AQA GCSE Economics on what economic growth is, its causes, the stages of the economic cycle, and the benefits and costs of growth.
Reviewed by: AI editorial process; not yet individually human-reviewed
Have a quick question? Jump to the Q&A page
Jump to a section
What this dot point is asking
AQA wants you to define economic growth, explain its causes, describe the stages of the economic cycle, and evaluate the benefits and costs of growth. You should be able to calculate a growth rate from real GDP figures and link growth to the wider macroeconomic objectives.
What economic growth is
Economists distinguish actual growth (using up spare capacity, moving towards the production possibility frontier) from potential growth (an outward shift of the frontier as the economy's capacity expands).
Causes of growth
Growth comes from increasing the quantity or quality of an economy's resources:
- More factors of production: a larger workforce, more capital or more land use.
- Better quality factors: education and training raise the quality of labour.
- Higher productivity: producing more output per worker per hour.
- Investment and technology: new machines and methods raise output and lower costs.
- Higher total demand: more consumer spending, investment, government spending or net exports can raise actual output in the short run.
The economic cycle
In a boom, output, jobs and prices rise, confidence is high and the economy may overheat as demand outstrips supply. In a recession, output falls, unemployment rises, business confidence drops, firms cut investment, and the government may use expansionary fiscal and monetary policy to revive demand. The cycle then turns into recovery and the pattern repeats, though the booms and recessions vary in length and depth, which is why economists describe the cycle as regular but not perfectly predictable.
Benefits and costs of growth
Benefits:
- Higher incomes and living standards over time.
- More jobs and lower unemployment as firms expand.
- More tax revenue for public services without raising tax rates.
- Greater business confidence and investment.
Costs:
- Inflation if demand outstrips the economy's ability to supply.
- Environmental damage such as pollution, congestion and resource depletion.
- Possible wider inequality if the gains are unevenly shared.
- Risk of an unsustainable boom and bust.
Worked example
Try this
Q1. Define economic growth. [2 marks]
- Cue. An increase in the real output (real GDP) of an economy over time.
Q2. Explain one benefit of economic growth for a government. [3 marks]
- Cue. Higher output raises incomes and profits, increasing tax revenue to fund public services.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 20199 marksAnalyse the possible costs of rapid economic growth for a country.Show worked answer →
Rapid growth means total output is rising quickly, which usually raises incomes and jobs, but there are costs.
Fast growth can cause demand-pull inflation if the economy cannot expand supply quickly enough, eroding the value of money. It can also bring environmental costs such as pollution and resource depletion, and may widen inequality if the gains go mainly to higher earners. There is also a risk of an unsustainable boom followed by a bust.
A 9 mark answer develops at least two costs with clear chains of reasoning, uses an example, and notes that growth still brings benefits, reaching a judgement that the costs depend on how fast and how sustainable the growth is.
AQA 20214 marksA country's real GDP rises from 500 billion pounds to 515 billion pounds in a year. Calculate the rate of economic growth. Show your working.Show worked answer →
The growth rate is the percentage change in real GDP: .
This gives .
So the economy grew by . Markers reward the correct formula (change divided by original, times 100), the correct arithmetic, and the percentage sign. A common slip is dividing by the new figure (515) instead of the original (500).
Related dot points
- The four main macroeconomic objectives, what gross domestic product (GDP) measures, how living standards are judged, and the possible conflicts between objectives.
A focused answer for AQA GCSE Economics on the main macroeconomic objectives, what GDP measures, how living standards are assessed, and the conflicts between objectives.
- What unemployment is and how it is measured, the main types and causes of unemployment, the costs of unemployment, and the meaning of full employment.
A focused answer for AQA GCSE Economics on what unemployment is, how it is measured, the main types and causes, the costs of unemployment, and the idea of full employment.
- What inflation is and how it is measured by the CPI, the causes of inflation, the effects of inflation, and the meaning of deflation.
A focused answer for AQA GCSE Economics on what inflation is, how the CPI measures it, the causes of inflation, its effects, and what deflation means.
- Fiscal policy through government spending and taxation, monetary policy through interest rates and the money supply, the role of the Bank of England, and how these policies are used to meet macroeconomic objectives.
A focused answer for AQA GCSE Economics on fiscal policy (spending and taxation), monetary policy (interest rates), the role of the Bank of England, and how policy is used to meet objectives.
- The reasons for international trade, the meaning of imports and exports, the balance of payments, the role of exchange rates, and the benefits and drawbacks of trade.
A focused answer for AQA GCSE Economics on why countries trade, imports and exports, the balance of payments, exchange rates, and the benefits and drawbacks of trade.
Sources & how we know this
- AQA GCSE Economics (8136) specification — AQA (2017)