Benefits and Cost of Economic Growth

Question 1

what are 4 benefits brought by economic growth

Answer 1

1. increasing income + material welfare (higher purchasing power)
2. more economic opportunities (more productive - more resources hired)
3. tax dividends to gov (allows more spending on social infrastructure)
4. higher quality g/s (promotes, skills, productivity and tech change)

Question 2

what is derived demand

Answer 2

the demand for economic resources based on the demand for final g/s

Question 3

what are 5 costs brought on by economic growth

Answer 3

1. not evenly spread
2. structural change in the economy
3. inflationary pressures
4. social costs
5. goods and bads

Question 4

describe how growth not being evenly spread is a cost of growth (what is the gini coefficient)

Answer 4

A measure of income inequality (9% of income goes to top 1% earners). There is income/wealth inequality -> life expectancy, education, crime, equality

Question 5

( costs) what is structural change in the economy and what drives it (2 points)

Answer 5

changes in the distribution of output, income, employment. new tech/innovation/inventions makes this possible and firms seek to improve production

Question 6

(costs - structural change) explain how resource reallocation affects growth

Answer 6

dif sectors of economic growth grow at dif rates resulting in the reallocation of resources across the sectors (eg. banks no long have teller)

Question 7

what is inflationary pressure and how is it affected by economic growth

Answer 7

when resources are fully employed and there is no excess capacity there is pressure on resource prices as growth rates increase

Question 8

explain the social costs brought on by econ growth

Answer 8

creates materialism - people measure welfare by number of things that own as a gauge of happiness as they strive to own more which gets them into debt
this results in crime, stress, suicide, family break up

Question 9

explain how growth can bring on goods and bads (2 examples)

Answer 9

rural to urban move brought on by job growth in city which brings car congestion
increased production - environmental cost

Question 10

what is sustainable economic growth

Answer 10

a rate of growth which can be maintained without creating significant economic problems for the future and that can provide decent jobs

Question 11

explain the opportunity cost of economic growth and state 2 examples

Answer 11

trade off between growth TODAY and in the FUTURE
depletion of oil/fish stocks
global warming

Question 12

when is rate of growth optimal

Answer 12

when total benefits of growth > costs

Question 13

using a graph (fig 8.7) describe why benefits rise at a decreasing rate and costs at an increasing rate - what is the intersection

Answer 13

benefits - living standard rise

costs - op costs of resource rise