2.5.4 The impact of economic growth

Question 1

Benefits of economic growth?

Answer 1

/Increased incomes lead to better standards of living
/Decreased levels of absolute poverty
/Improvement in the quality/quantity of environmentally friendly technologies
/Higher sales revenue for firms and greater profits
/Increased investment by firms increases the potential output of the economy
/Reduced expenditure by governments on benefits
/Higher government tax revenue due to rising incomes and surging corporate profits
/Increased employment resolves some of the negative social impacts of unemployment

Question 2

Costs of economic growth?

Answer 2

/Rising aggregate demand causes demand pull inflation; purchasing power of people on fixed incomes may fall
/Lack of equity in the distribution of income - the rich may get richer and the poor poorer
/Environmental damage caused by negative externalities of production
/Increased inflation can harm export sales
/Decreased export sales may lead to a delay in investment by firms
/Increased income usually leads to greater consumption of demerit goods
/Greater output often requires more time from workers and can decrease leisure time and well-being