Economic Growth Flashcards
Define ‘economic growth’
The rate of change in real GDP per capital over a long period of calendar time
What are the 3 pre-requisites Adam Smith had for economic growth to occur?
The security of property
Control of primogeniture (the first child)
Infrastructure provided by the state
What were the pitfall’s of Smith’s take?
Assumed the extra population from economic growth would lead to more output > may not generate more output per head, so could make individual’s worse off
Describe Malthus’s Theory of Population
He assumed pop. rose as a geometric progression (e.g. 1,2,4,8..) whilst food supply grew in arithmetic progression (e.g. 1,2,3,4..)
Unless pop. growth is checked, pop. would outgrow food supply
Pop. growth had to be restrained below its potential by checks on birth rate (preventive checks) / death rate (positive checks)
Checks > vice (birth control), misery (starvation)
He believed e. growth wouldn’t raise average living standards because of pop/. growth
Describe Ricardo’s Theory of Economic Growth
Cap. accumulation led to increased output > increase pop. growth > higher D for food
Fertile land being scarce > less fertile land brought into prod. > price of food + rent would rise
Wages rise (to prevent starvation) > higher rents led to a fall in wages + profits
Eventually profits would fall so low there’d be no incentive to invest and growth would end (stationary state)
Describe Marx’s Model of Growth
Essentially used the same model as Ricardo to show profits were as a result of capitalists exploiting workers
Conflict between the workers and the capitalists > social revolution where workers attempt to take over the means of production
Benefits of economic growth?
Living standards
Lifestyle (innovation created by technical advances transform our way of living)
Income re-distribution (progressive taxes)
Costs of economic growth?
Opportunity costs
Personal & social costs
Growth doesn’t = happiness
Negative externalities
How are opp. costs a cost of economic growth?
Growth usually requires investment in cap. goods, education & health
These investments don’t yield immediate return
Growth, which promises more goods tomorrow, is only achieved by consuming fewer goods today
For aggregate economy, this is a sacrifice of current consumption > primary cost of e. growth
How are personal & social costs a cost of e. growth?
Growing economy = changing economy > continual reallocation of resources necessary as innovation may lead to redundancies
Costs may be small for society, but they’re very high for individuals involved and very unevenly spread
e.g. industrial revolution destroying jobs of skilled textile workers, replacing them with unskilled factory jobs
How is ‘growth not = happiness’ a cost of e. growth?
In the USA, surveys show that the % of population feeling “very happy” was no higher in 2000 than in 1960 despite a doubling of real incomes over that period
Working longer hours reduces leisure time
