Costs and benefits of economic growth

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  • Economic growth
    • Benefits
      • Improvements in living standards
        • Growth is an important avenue through which per capita incomes can rise and absolute poverty can be reduced in developing nations,
        • 'Trickle-down effect'
      • More Jobs
      • The accelerator effect of growth on capital investment
        • Rising demand and output encourages investment in capital
          • Helps to sustain GDP growth by increasing LRAS
      • Greater business confidence
        • A growing economy boosts tax revenues and generates the money to finance spending on public and merit goods and services without having to raise tax rates.
      • Potential environmental benefits
        • As countries grow richer, they have more resources available to invest in cleaner technologies
        • As nations develop, energy intensity levels fall
      • The effect of growth are cululative
    • Costs
      • Inflation risk
        • if demand races ahead of AS the scene is set for rising prices
          • Structural inflation
      • Environmental concerns
        • Negative externalities
          • e.g. noise, air pollution
        • Increase in household and industrial waste
      • Uneven distribution of the effects of economic growth
        • Rising inequality
      • Degradation and depletion of worlds scarce resources
        • Rainforests and clean water
          • May limit consumption patterns in the future


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