2.5.4 The impact of economic growth

Question 1

what are the 2 benefits of economic growth on consumers

what is 1 drawback of economic growth on consumers

Answer 1

-one benefit is that there will be an increase in demand for houses, this is because people now have more money and so are able to afford to buy properties. This increase in demand will lead to an increase in house prices, which increases people’s wealth, thus leading to a positive wealth effect.
-This positive wealth effect can also be seen via shares, they will increase in value as businesses are making more money and future prospects are good.Thus rising the prices of shares leading to a positive welath effect.

-Improved productive efficiency due to the innovation of better technology, this will lead to lower prices or higher quality goods.

-one drawback of economic growth on consumers is that it may lead to increased inequalities and so may not have any effect on the average consumer and may lead to inflation, which has negative effect for consumers (e.g erodes purchasing power)

Question 2

what are the 3 benefits that economic growth has on firms

what are 2 drawbacks that economic growth has on firms

Answer 2

-investment will increase since businesses are more successful. they will have more money to invest and more incentive to invest as they know they can make moeny from their investments due to the higher demand.

-business confidence will increase as there is a potential increase in demand for the fims goods/services., this increse in conofidence will likely lead to an increase in investment.

-as a result of both increased investment by firms and the gvernemnt, technology is likely to improve, as more R+D has been undergone.This is likely to increase productive efficieny which may lead to lower costs and/or a decrease in price to attract demand whilst maintainng sustainable profit margins.

-one drawback is that firms who sell inferior goods may lose out.
-another drawback is thatchanging technologies and globalisation also mean that some firms find their markets disaperaing/going obsolete