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Definition of Economic growth
Economic growth is the long-term expansion
of an Economy.
It is where Gross Domestic Product (GDP)
increases and so the trend rate of growth
shifts upwards. (Figure 1)…read more

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The Benefits of Economic growth
Living standards improve through higher real GDP per
head ­ This is important as it reduces absolute poverty.
The increase in output generates work and therefore
reduces unemployment.
Increased tax revenues can be used to fund extra
government spending ­ could lead to an increase in
merit goods and an improvement in public services
Improved business and consumer confidence ­ Leads
to more consumption and investment (including
overseas)…read more

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Benefits of growth continued
Growth is an incentive to introduce new
technology and so leads to firms innovating
Due to the increase in government revenue,
the government may not need to borrow as
much…read more

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The costs of Economic growth
Environmental damage ­ Fast growth can lead to an increase in
negative externalities, Overconsumption leads to a depletion in
High inflation rates- If AD increases faster than AS then
economic growth will be unsustainable. The output gap will
narrow causing inflation to increase. (i.e. Demand-pull inflation)
Balance of payments deficit ­ Economic growth and higher
incomes will lead to an increase in consumer imports where the
value of imports will be greater than exports leading to a deficit
in the Balance of payments.
Increasing inequalities in income and wealth ­ The gap between
rich and poor widens, relative poverty grows as average wages
increase. (To be in relative poverty income must be below 60%
of average income)…read more

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Costs do not outweigh the benefits because:
Environmental pollution can be reduced by innovation and
investment into more renewable energy sources as a result of
Economic growth
The increase in inflation is met with an increase in wages ­ It has
little effect.
Higher inflation can benefit the economy if it is demand-pull
inflation, this is because firms can gain more profits usually
meaning they can invest more in research and development.
With higher wages, there is an incentive for the unemployed and
those on a low income to gain more skills, etc. to get higher paying
A deficit in the Balance of payments has little negative effect on
consumers, as they have a larger choice in goods and services. ­
Can lead to lower prices as domestic firms have to be more
competitive.…read more


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