Economic Growth IB Economics Study Notes

In the International Baccalaureate (IB) programme’s curriculum, Economics is a part of the compulsory subjects. Therefore, every IB student must learn about economic growth IB Economics.

As the name suggests, the IB Economics is a comprehensive subject that delves into the intricate workings of economic systems within societies. Meanwhile, economic growth shows the dynamic process through which economies expand and develop over time.

What is Economics?

At its core, economics as a field of study seeks to unravel the dynamics behind how individuals, businesses, and governments make choices to manage scarce resources.

It’s a social science that scrutinises human behaviour in producing, distributing, and consuming goods and services.

So, economics examines the fundamental question of how societies satisfy unlimited wants with limited resources.

It encompasses various subjects, including microeconomics, which explores individual decision-making units, and macroeconomics, which studies aggregate economic phenomena.

What is Economic Growth

Now, let’s talk about the topic of economic growth IB Economic. In IB Economics, economic growth signifies the steady expansion of a nation’s capacity to produce goods and services over time.

It is used for measuring progress and prosperity within an economy. Also, it is typically measured by the rise in Gross Domestic Product (GDP), reflecting an increase in the nation’s overall output and income.

Benefits of Economic Growth

In the topic of economic growth IB Economics, students will learn about the benefits for every element, such as:

• Improved Living Standards

Economic growth leads to increased national income, which translates into higher personal incomes for individuals.

With higher incomes, people have more purchasing power, enabling them to afford better quality goods and services, including healthcare, education, and housing.

• Increased Employment Opportunities

As the economy expands, industries grow, new businesses emerge, and existing ones expand, creating more job opportunities.

Reduced unemployment rates mean more people can access jobs, contributing to economic stability and individual financial security.

• Revenue Boost for the Government

Economic growth results in higher profits for businesses and increased wages for workers, expanding the tax base.

With more tax revenue, governments can invest in public services, infrastructure development, and social welfare programs, improving overall societal well-being.

• Ability to Combat Poverty

Economic growth can lift people out of poverty by providing job opportunities and increasing wages.

Government policies to redistribute wealth and ensure equitable access to resources can help reduce income inequality.

• Stimulated Investment

A growing economy attracts domestic and foreign investments, leading to technological advancements and innovation.

Increased investment fosters business expansion, job creation, and economic diversification, contributing to long-term sustainable growth.

Costs of Economic Growth

However, economic growth also gives inherent costs and challenges for the environment, people, and more. Here are the potential costs, according to the topic of economic growth IB Economics:

• Environmental Damage

When economic growth speeds up without proper management, it can harm the environment. This often happens as more industries develop, leading to problems like deforestation, more greenhouse gases in the air, and using too much water.

These are all negative effects of making things, which show the costs of growing the economy too fast. Also, relying too much on resources that can’t be replaced can cause big problems in the future.

• Income Inequality

Even when the economy grows, it doesn’t mean everyone gets a fair share of the benefits. Sometimes, rich people see their money grow faster than poor people, making the gap even bigger.

• Inflationary Pressures

If the demand for things grows too quickly and there aren’t enough of them to go around, prices can go up. This means people might have more money, but everything costs more, so they don’t get ahead.

• Infrastructure Strain

When cities grow fast, it puts much pressure on people’s needs, like buses, roads, water, and houses. Sometimes, these things can’t keep up with how fast the city grows, making life harder for everyone.

• Short-Term Prioritisation

Companies often want to make the most money right now, even if it means ignoring what’s best for the future. This can lead to bad decisions that might help in the short term but cause problems in the long term.

Factors Affecting Economic Growth

To deepen your understanding in the topic of economic growth IB Economic within the International Baccalaureate curriculum, here are the explanations of factors contributing to economic growth:

• Natural Factors

Including anything that enhances the quantity or quality of factors of production (FOP) tends to boost potential growth.

• Human Capital Factors

Improvements in healthcare, education, vocational training, and re-training programs for the unemployed enhance the quality of human capital as an important resource for a country’s economy.

• Physical Capital and Technological Factors

Physical capital encompasses assets like factory buildings, machinery, shops, offices, and motor vehicles. Quality improvement involves initiatives like higher education, research and development (R&D), access to foreign technology, and expertise.

• Institutional factors

Adequate banking systems, well-structured legal frameworks, a robust education system, reasonable infrastructure, political stability, and positive international relationships are crucial institutional factors contributing to economic growth.

Measuring Economic Growth

The commonly used method to measure economic growth is by GDP (Gross Domestic Product). This topic is also covered in economic growth IB Economic subjects. There are three ways to check out real GDP:

• Quarterly Growth at an Annual Rate

This method checks how much the GDP changes from one quarter to the next, then works it out as an annual rate. For example, if the change in one quarter is 0.3%, we figure out the annual rate to be 1.2%.

• Four-quarter/Year-over-Year Growth Rate

It compares the GDP of one quarter from two years in a row as a percentage. It helps to balance out the effects of seasonal changes.

• Annual Average Growth Rate

It shows the average of changes in all four quarters. For instance, if in 2022 the rates for each quarter were 2%, 3%, 1.5%, and 1%, the annual average growth rate would be 7.5% ÷ 4 = 1.875%.

GDP is measured by adding up all the money spent by consumers, businesses, and the government in a certain period. The formula is: GDP = consumer spending + government spending  + business investment + net exports.

Real-World Application

In the real world, economic growth impacts various aspects of daily life. For example, let’s take the case of COVID-19 pandemic. It has disproportionately affected poorer nations, hindering their economic growth prospects.

Also, this crisis has led to a surge in poverty levels, particularly in developing countries like India, where vulnerable populations struggle amidst negative growth projections.

To analyse this real-world case, students can use various methods learned from the subject of economic growth IB Economic. For best economics studies, you can explore our International Baccalaureate programme here at BINUS SCHOOL Simprug.

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References:

https://www.savemyexams.com/dp/economics/hl/22/revision-notes/

https://www.tutorchase.com/notes/ib/economics

https://iicshumanities1.weebly.com/uploads/6/3/2/7/63271491/oxford_ib_economics_study_guide.pdf

https://www.ibdeconomics.com/growth-and-development.html

https://www.tutorchase.com/notes/ib/economics/3-3-3-economic-growth

https://ibrecap.com/DP/Economic%20Development

https://www.investopedia.com/terms/e/economicgrowth.asp#:~:text=Economic%20growth%20is%20commonly%20measured,peak%2C%20contraction%2C%20and%20trough.

https://www.peakib.com/resources/development-real-world-examples-for-ib-economics-students