2.5 - Impact of economic growth

Question 1

Benefits of economic growth on consumers

Answer 1

• Improved productive efficiency due to better technology could lead to higher quality goods and services
• Increased Income and Wealth: Economic growth typically leads to higher income levels and increased wealth.
• Increase in demand for housing as people have higher incomes and so
  are able to afford to buy properties, which will increase house prices.
• Shares are likely to increase in value as businesses are making more money and future
  prospects are good.
• The rising prices of shares and housing will increase wealth and
  lead to positive wealth effect

Question 2

Costs of economic growth on consumers

Answer 2

• Inflation: Rapid growth can lead to inflation, eroding purchasing power.
• Inequality: Benefits of growth may not be evenly distributed, leading to greater income inequality.

Question 3

Benefits of economic growth on firms

Answer 3

• Higher Profits: Increased consumer spending boosts sales and revenues and so profits (also may have lower costs, higher profits)
• Economies of Scale: Firms can expand and achieve lower costs per unit due to larger scale production.
• Innovation and Investment:
  Business confidence will improve as there are potential demand increases for businesses’ products and this confidence will also lead to increased investment - can lead to innovation

Question 4

Costs of economic growth on firms

Answer 4

• Increased Competition: More firms entering the market can lead to increased competition.
• Resource Depletion: Rapid growth can lead to overuse of natural resources, increasing costs in the long term.
• firms who sell inferior goods (with negative income elasticities)
  may lose out

Question 5

Benefits of economic growth on the government

Answer 5

• Higher Tax Revenues: Economic growth increases incomes and corporate profits, leading to higher tax revenues. > can reduce government budget deficit > , perhaps even bringing about a budget
  surplus which would allow money to be saved for future recessions.
• Public Investment: Higher revenues allow for greater investment in public infrastructure and services.

Question 6

Costs of economic growth on the government

Answer 6

• Inflationary Pressures: Managing inflation becomes challenging during periods of rapid growth.
• Environmental Degradation: Economic growth can lead to pollution and environmental damage.

Question 7

Benefits of economic growth on current and future living standards

Answer 7

• Improved Living Standards: Growth leads to better healthcare, education, and overall quality of life.
• Technological Advancements: Innovations improve efficiency and quality of life
• Increased government spending will lead to improved living standards both now
  and in the future
• Economic growth will result in lower poverty levels . An increase in the production of
  goods and services will increase jobs so there will be less unemployment and less people on benefits. Wages are also likely to increase.

Question 8

Costs of economic growth on current and future living standards

Answer 8

• Environmental Sustainability: Growth can lead to environmental degradation, affecting future living standards.
• Resource Exhaustion: Overuse of natural resources can lead to scarcity, impacting future generations.
• there could be decreased future living standards due to exploitation of the
  environment. A rise in income means more people have access to electricity etc.
  and use it more freely. This causes depletion of non-renewable resources, concern about sustainability of growth for future generations and increased levels of
  pollution /waste / congestion.
• Another cost may be that economic growth may result in increased inequalities
  between rich and poor. The rich may be the only ones that have gained from the
  economic growth and they may even lower the living standards of the poor by
  exploiting the poor.