📈 Economic Growth
Two types of growth: Actual growth. Potential growth.
Benefits of growth
- Higher incomes and living standards.
- Lower unemployment (more output requires more workers).
- Government tax revenue rises → can fund public services.
- Poverty reduction (if growth is inclusive).
Costs of growth
- Environmental damage (pollution, resource depletion) if growth is unsustainable.
- Inequality may widen if benefits are concentrated.
- Inflation risk if demand grows faster than supply.
- Stress, overwork, and reduced leisure time.
👷 Types of Unemployment
Unemployment rate. The IB expects you to know four types:
- Cyclical (demand-deficient) unemployment. Rises during recessions, falls during booms. Addressed by demand-side policies.
- Structural unemployment. Requires retraining, education reform, or relocation incentives.
- Frictional unemployment. Normal and unavoidable; a sign of a healthy labour market.
- Seasonal unemployment.
Natural rate of unemployment: The natural rate of unemployment (NRU). It is NOT zero — some unemployment always exists.
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💸 Costs of Unemployment
Economic costs
- Lost output — economy operates inside the PPF (real GDP below potential).
- Lower tax revenue — fewer workers earning and spending → government collects less.
- Higher government spending — unemployment benefits and social services cost more.
- Skills erosion — long-term unemployed lose skills (hysteresis effect), reducing future productivity.
Social costs
- Mental health issues, stress, and loss of self-esteem for the unemployed.
- Increased crime rates and social unrest in areas of high unemployment.
- Family breakdown and poverty, especially with long-term unemployment.
- Regional inequality — some areas are hit harder than others.
For essays, distinguish between personal costs (to the unemployed individual) and economic costs (to the wider economy and government). The IB values this distinction.