Unit 5.7 - Activity 6-3A
Policies to Promote Economic Growth
A country experiences economic growth if it has increased its long-run ability to produce goods and services, no matter the current short-run phase of the nation’s business cycle. Recall that short-run fluctuations in the business cycle are caused by changes in either aggregate demand or short-run aggregate supply. These short-run changes lead to increases, or decreases, in real gross domestic product (GDP). However, these changes are movements around the long-run stability of full-employment GDP. So another way to think about economic growth is to consider the level of real GDP when the nation is at full employment. If this level of full-employment output, as seen by the location of the long-run aggregate supply curve in Figure 6-3.1, is increasing, the nation is experiencing real growth.
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