Costs and benefits of economic growth

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  • Created by: Jade
  • Created on: 08-01-13 17:20

Capital goods

  • If an economy is currently using all of its resources, thus producing on its PPC - the only way it can further increase output is to switch resources from making consumer goods to capital goods. 
  • In the long run, the extra capital goods will enable more consumer goods to be made. 
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Non-sustainable economic growth

E.g. by the expansion of heavy industry without regard to controls on pollution, there will be damage to the environment. There is also the risk that economic growth may result in the depletion of non-renewable resources. 

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Reduction in life quality

A growing economy is one that requires some people to adopt new skills and some to change jobs. 

Pace of work may also increase 

Some people may find these changes stressful.

E.g. increased number of cars, increased peoples flexibility of travel, resulted in congestion, more accidents, increase in breathing related diseases and more noise.

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Rise in material standards

Governments believe benefits of economic growth outweigh costs - why economic growth is a key macroeconomic objective. 

Rise in material standard of living - if real GDP per capita increases, the population can enjoy more goods and services. 

Poverty within a country - reduced without having to redistribute income. 

Higher output raises tax revenue WITHOUT having to increase tax rates, some of this can be used to finance schemes to help the poor. 

Some of the higher tax revenue can also be used to improve public services,such as educatio, healthcare. 

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Increasing employment

Higher output may reduce poverty by increasing employment 

Economic growth can help a gov achieve its objective of full employment 

Risk - if AD does NOT increase in line with production, higher output may be accompanied by higher unemployment.

If workers productivity increases by more than AD, firms may be able to produce more output with fewer workers. 

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Increases status in international organisations

E.g. the USA, which as a very high level of GDP per head - very powerful memeber of UN, IMF and WTO 

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Sustainability of economic growth

Governments are becoming increasingly concerned to promote stable economic growth in both the short term and long term. There are regular meetings of governments at which they seek to reduce climate change and pollution, and meetings that try to promote greater economic stability. These meetings recognise that an individual country’s ability to grow now and for generations to come is affected by what is happening in other countries.

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