Cambridge IGCSE Economics 0455
Syllabus points
- Define economic growth and gross domestic product (GDP).
- Explain the causes of economic growth and the phases of the business cycle.
- Explain the consequences of growth and of recession.
What is economic growth?
Economic growth is an increase in a country's output of goods and services, usually measured by the rise in gross domestic product (GDP) — the total value of everything produced in a country in a year. Growth is often shown as an outward shift of the PPC.
Key definitions
| Term | Definition |
|---|---|
| Economic growth | An increase in real GDP over time. |
| Gross domestic product (GDP) | The total value of goods and services produced in a country in a year. |
| Recession | A fall in real GDP over two consecutive quarters (six months). |
The business cycle
Economies do not grow smoothly. The business (economic) cycle has phases:
- Boom — fast growth, high demand, rising prices, low unemployment.
- Slowdown — growth slows.
- Recession — output falls, unemployment rises.
- Recovery — output starts rising again.
Causes of growth
- More or better resources (labour, capital, land).
- Higher productivity (from education, training and technology).
- More investment by firms.
- Discovery of natural resources.
Consequences of growth
| Benefits | Costs |
|---|---|
| Higher incomes and living standards | Possible inflation |
| More jobs | Environmental damage/pollution |
| More tax revenue for public services | Depletion of resources; inequality may widen |
Growth raises living standards and jobs, but can bring inflation and environmental harm.
Worked example
A country invests heavily in technology and training. Productivity rises, firms produce more, and GDP grows by 4% a year. Incomes and jobs increase, and the government collects more tax to fund services. But factories emit more pollution and, if the economy overheats, inflation may rise — the trade-offs of rapid growth.
Common exam mistakes
- Confusing GDP (total output) with GDP per person (living standards).
- Defining a recession loosely — it is a *fall* in real GDP, not just slow growth.
Exam technique
Balance the benefits and costs of growth, and use the business cycle to explain why unemployment and inflation change over time.
Quick revision
- Growth = rising real GDP; recession = falling GDP for two quarters.
- Causes: more/better resources, productivity, investment.
- Benefits: incomes, jobs; costs: inflation, pollution.