Distinguish between potential and economic growth and discuss the main Essay

Distinguish between potential and economic growth and discuss the main factors determining each - Essay Example Also, is it important that this ability of supply is always realised? This paper will attempt to answer these questions. Take a look at an economy’s business cycle1 showing the potential and the actual growth. It can be seen that there are some discrepancies in the actual and the potential. The Long Run Aggregate Supply curve can be shown as a vertical line in the graph. This figure depicts a yearly increase in the potential output of an economy, which consequently pushes the LRAS to over to the right also. It must be noted also that the progressive increase in Real GDP results in equitable increases in the rightward shift of the LRAS. So what causes the shift in the LRAS? These are described below: The labour force can be described as all the people, 163 years of age and above, who are either employed somewhere, or are actively seeking employment (Labour force, 2005). Retirement age4 also affects the number of employable people in the market. The birth rates and the death rates in a country play a major role in determining the size of available workforce, and also for making predictions for the future. For example, India, the second most populated nation of the world, has a steadily increasing birth rate, which predicts that the nation has and will have a surplus of available labour. Contrarily, most nations in Western Europe, for example Switzerland, have a decreasing birth rate, displaying the nation is likely to face a labour shortage. To match these, immigration5 plays a very important role. The chart displays the dependence that developed economies have on the developing world, esp. Asia, to fulfil their labour gaps. The reasons for immigration might be religious or political, but most importantly they are economic (Fairchild p145), where a person believes that he will be able to have a better chance of matching economic returns to the effort and labour he puts into his work and thus lead a better live with a higher standard of living. This