costs and benefits of economic growht Flashcards
theres huge benefits of growth but also issues with
unrestrained economic growth
how many benefots of eocnommic growth are there
4
state the 4 benefits of economic growht
higher employment
higher disposbale income
higher profits for firms
higher fiscal dividend
state 4 costs of economic growth
demand pull inflartion (MO conflict)
current account deficit (MO conflict)
income inequality
environmental costs (non core macro obj)
explain how higher disposable income is a benefit of eocn growht
give me about 9 poitns
firms make more profits
translate some into higher wages and salaries
+ workers getting jobs they didint have before
existing workers get promoted
exisiting worekrs could be becoming more productive so can ask for higher incomes
therfore they can access a better standard of living materially/non materially
people are feeling more optimistic and happeir - increases consumer confidence
in developig countries this is beautiful as can alleviate absolute poverty massivley
get spiral effects of increased AD can increase multiplier too leaidng ot more growth
what is maerial standard of living
access to phsyical goods and services such as food
non material standrd of living
access to intangble goods such as health care
education transport
explain how higher employment is a benefit of economic growth
gimme 4
more econ growth = more demand for goods and services
as labour is a derived demand for firms to meet output employ more workers
workers earn more income to improve living standards
this also frees up the government finances - as spend less on unemployent beenfits if mroe people are in work - can put instead into training to imporve long run productive capa ity of country
explain how higher profit for firms is a benefit of econ growth
as households earning and spenidng more
firms getting more sales
this incfeases profits
firms can invest in more capital goods
means can make more profit overtime as production process more efficient and reduces LR costs
can elad to accelarator effects of more investment
what is the accelerator effecct
growth triggers investment
whihc triggers more growht and more investment so increases growth rate over time
explain how higher fiscal dividend for gov is a benefit of economic growth
5/6 points please
income tax increased as households are getting moreincoem
Vat increases as more income is spentt on goods and sservices in econ
corp tax increases as firms maek more profit
tariff revenues increased as households spend on imports
this means gov can spend in economy more easily on health education and increasing welfare of citizens , public sector wages whihc can have knock on effects of even more growth
e.g spending on education incfeases means increased quality of fop shoft lras right leading to economic growht as well as increased prodcutive capacitu and lower inflationary pressures
what does increased fiscal dividend mean
increases tax rev for gov
explain how demand pull inflation is a cost of economic growth
epecially if Actual grow is greater than potetial growht with a +ve ouptu gap
DPI erodes purchasing power so a hihger SOL may not occur to levele we’d like - as consumers arent able to increae material and non material SOL as thought
income inequality as a cost of econ growht
what does it means and summairse the 5
income may not be distriuted across econ very evenly
dominnat sector
capital intensive prod
urban areas
jobs created may not ay well
dont have income distributing policies
explain income ineuality interms of dominant secotr
growth could arise from a dominnat sector
e.g oil in nigeria , finanical serice sin the UK
therfore increased income is contined in one sector which can increase the distribution of income inequality and wealth
explain income inequality in terms of capital intensive productino
if most of economic groth comes form capital intensive production as opposed to labour
we wont see wide spread increeases in economic growht rather
increases to owners of the capital
explain income ineuaity in terms of growth from urban areas
if it occurs in urban areas and not rural areas this can elad to an income divide
as seen in teh UK wiht the north south divide
i.e if incoems rise in cities but but those in rurual areas still owrk in agriculture with lower wages
this is unfair
explain income inequality in terms of jobs created may be paid poorly
jobs created may be of poor quality hours and people may be underemployed creating a further income divide
expain income inequality in terms of not having income redistributing policies
all of the problems of income inequality made worse if gov dont have income redistributing policies
i.e gov that dont enforce welfare state
means income divide will persisit
so those on lower Y continue to live in relative/absolute poverty even though econ growth taking place
explain how environmentla costs are a -ve of econ growth
china and india are great example
e.g air pollution , deforestation can create negatove externalities of conumption
whihc brings with that a welfare loss
hihger standards of living ecompass health, educarion , income . so although SOL increase on monetary side if comes with destruciton of enviro people could actually be made worse off
how can econ growht widen CA deficit and whats important about his
macro econ obj conflict
household incomes rise therfore more demand and consumption on imorts
import expenditure rises
which widens currebt account deficitn
ask is it okay to bring in fact leads to weak pound and this may decrease CA (marshall lener )
what is a social cost of maxing economic growth
get this econ growth from people working longer hours so miss out on leisure time
counter argue the popele have to work more idea of econ growth
econ growht and highe rproductivity enables people to work less
another social cost is the disease of
affluence
