Long Term and Short-Term Economic Growth

LONG TERM AND SHORT-TERM ECONOMIC GROWTH
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Abstract
Short-term and long-term economic growths are vital elements that steer an economy to its potential actualization. In this research paper, I explore the differences between the two economic components and further explore the main determinants of long-term economic growth and its effects on business.
LONG TERM AND SHORT-TERM ECONOMIC GROWTH
Economic growth entails an increase in a country's output of goods and services over a certain period. When a country experiences an increase in Gross Domestic Product (GDP) either in the short or long term, the growth amounts to the economy's actual or potential development.
Numerous differences exist between the two paradigms of economic growth. First, short-term or actual economic growth occurs when there is an increase in the equilibrium output of a nation producing below its whole employment level; that is, the output is within its production possibility (PPC) curve, usually in the short run. However, long-term or potential economic growth happens when there is an increase in a nation's production possibilities or the long-run potential level of output beyond a country's production possibility curve. The increase results in an outward shift of a nation's PPC curve.
Furthermore, in the short-term economic growth, production and resources are not efficiently and optimally used. Excess capital, labor, and land resources are continually ineffectively utilized, limiting the output within the nation's production possibility curve. The inefficiency causes a rise in the unemployment rate since the country is producing below its formal employment potential level. In contrast, long-term growth incorporates an increase in efficiency in the quality or quantity of the production factors mentioned earlier. In this model, land quality is maximized by discovering new resources and technologies, like farming and mining technologies, fertilizers, and pesticide usage. Consequently, an increase in output is realized, necessitating firms' capital investment in new technologies that demand more labor, hence pushing down the unemployment rate.
Notably, various inter-related determinants influence the long-term economic growth of a country. Their logical complexity groups them into three major categories as supply, efficiency, and demand determinants. We can identify four major elements that affect long-term economic growth from the broad categorization and cluster them into human resources, natural resources, capital formation, and technological advancements. Similarly, the determinants also fall under economic and non-economic. The economic determinants or "proximate" comprises labor, capital, and technology factors, while non-economic factors include geography and demography, government efficiency, institutions, cultural, social, political, and administrative systems (Acemoglu, 2009). Notwithstanding, the subsequent paragraphs simplify and highlight the various vital long-term economic growth determinants.
The labor force, which falls under human resource and economic determinants as pointed above, is one element that affects long-term economic growth. It consists of people involved in producing goo...