Economic growth Flashcards
1
Q
What are the main benefits of increased economic growth?
A
- Economic growth can lead to higher standards of living across a country, because a rise in the GDP per capita means that the government will be receiving greater tax revenue, which should in turn benefit the population through govt funded projects and social welfare benefits. Furthermore, greater consumption of goods and services will also raise living standards, as the population as a whole will have greater disposable incomes to spend on non-necessities, assuming that economic growth isn’t correlated with inflation
- reduced unemployment
- fiscal dividend - economic growth will lead to an increase in tax revenue and a reduction in the money being spent on unemployment benefits, meaning more more can be spent on public and merit goods, such as the NHS
- improvements in technology - improvements in healthcare will help to raise standards if living.
2
Q
What is the accelerator effect and how does it link to economic growth?
A
- economic growth leads to a virtuous cycle of increased business confidence.
- this is because, firms see that there is increased demand for their good or service, and expect this demand to be maintained during a boom
- therefore, they acknowledge that they will soon reach full capacity unless they invest in more capital equipment in order to satisfy greater demand.
- by investing, they might be able to achieve economies of scale, making them more internationally competitive. This will increase profits, in turn raising business confidence, and so the cyle continues.
- the accelerator effect therefore suggests that an increase in the rate of change of economic growth will stimulate proportionally more investment
3
Q
Summarise the costs of economic growth
A
- demand-pull inflationary pressure is possible
- environmental degradation - growth may be the result of using fossil fuels
- doesn’t automatically represent an increase in the quality of life of the population, as it could be that workers aren’t being treated well enough, or the economic growth is very unevenly spread out across the population - e.g., Guyana may have experienced a massive change in the rate of economic growth, but this only would have benefitted very few - as was due to discovery of oil
- high consumption of demerit goods
- mental health etc
