2.5.4 Benefits and costs of economic growth

Question 1

Benefits: consumers

Answer 1

Lower prices or higher quality goods: improved productive efficiency to due to better technology
Positive wealth effect: share value goes up in value as businesses make more money (or) house prices go up as there is an increase in demand for housing as people have more money and so
are able to afford to buy properties

Question 2

Costs: consumers

Answer 2

Inflation: demand rises faster than firms can increase supply, firms will respond to excess supply by putting up the prices - demand-pull inflation (or) as unemployment falls, firms may find it harder to fill job vacancies; this shortage of labour will cause wages to rise. If wages rise, firms costs increase, and pass these cost increases onto consumers - cost-push inflation.

Question 3

Benefits: firms

Answer 3

Increased investment: Businesses make more profit, these higher profit margins will encourage firms to reinvest.
-> Higher investment will go into the development of new technology, improved technology is likely to increase productive efficiency leading to lower costs.
Higher profits: This combination of higher profits and lower costs will likely to lead to higher profits.
Increased business confidence: Again, the increase in demand will encourage firms to reinvest.

Question 4

Costs: firms

Answer 4

Firms who sell inferior goods (negative income elastic) may lose out on high profits (or) changing technologies means that some firms might find their market disappearing e.g. DVD rental stores due to online streaming.

Question 5

Benefits: Government

Answer 5

Higher tax revenues: More goods and services are bought (VAT), Firms make more profit (Corporation tax), and more income is being earnt (Income tax).
-> Government has more money to spend on the quality of public services e.g. NHS, state education etc. increasing living standards.
-> Help reduce budget deficit

Question 6

Costs: Government

Question 7

Benefits: Current and future living standards

Answer 7

Lower poverty levels: As more goods and services are demand, more jobs are created, meaning less people on benefits.
Increase in government spending: Improves the quality and quantity of public services, leading to a better and more educated workforce.

Question 8

Costs: Current and future living standards

Answer 8

Exploitation of the environment: Increased economic activity, leads to an increase in demand for energy. This causes a depletion in non-renewable resources, concern for sustainability for future generations, and increased levels of pollution.
Increased inequality: Economic growth creates the best job opportunities for those highly skilled and educated. This leads to higher wages for highly skilled rather than unskilled jobs.