A) Factors which could cause economic growth
Short-run/actual economic growth is caused by an increase in Aggregate demand. Therefore any change in the components of AD (Consumer spending, Investment, Government spending and Net trade) will result in a change in economic growth. The increase in economic growth can be shown on a PPF curve. As shown on the diagram, an increase in economic growth moves the economy closer to full employment (the outer line). This shows an increase in the amount of goods/services being produced within the economy. The closer the point at which the economy is operating at is to the outer line, the larger the output of the economy. The maximum number of goods/services which can be produced is shown by the outer line.
The most common way to show an increase in short run/actual economic growth is through an Aggregate supply/demand diagram. An increase in any of the components of AD will shift AD to the right (AD1 to AD2), causing an increase in the price level (P1 to P2) and an increase in Real GDP (Y1 to Y2), taking the economy closer to full employment (YFE).
Long run economic growth is determined by a change in the quantity or quality of factors of production within the economy. For example, an increase in the spending on education will improve the quality of the future labour force. Therefore potential economic growth will shift outwards. This can be shown on a PPF curve. As the productive potential of the economy shifts from A to B, the total amount of consumer and capital goods that can be produced increases.
An increase in the long run growth of an economy can also be shown on an AD/AS diagram. The increase in quantity/quality of factors of production causes LRAS to increase from LRAS1 to LRAS2. This causes an increase in the price level (P1 to P2) as well as an increase in Real GDP (Y1 to Y2). The change in the productive capacity of the economy can be shown from Y1 and YFE. Y1 used to be the old full capacity of the economy and also where the economy was operating at, whereas YFE represents the new point of full employment. Therefore, the increase in the productive capacity of the economy means that the economy is now operating further away from the point of full employment without reducing real GDP. Before the increase in the productive capacity the full employment point was at Y1.