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. 

Answered by Sophie W. Economics tutor

30343 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Discuss the possible impact of supermarket monopsony power on both food suppliers and consumers?


Why is a monopoly inefficient?


What is the impact of a price ceiling on a market equilibrium?


The UK suffers from a persistent balance of trade deficit. what can the government do to rectify this and balance the trade figures?


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo
Cookie Preferences