Impact of economic growth Flashcards
Benefits of economic growth
Economic growth can lead to benefits for all economic agents –
consumers, producers, workers & the government
Higher standards of living: growth often leads to higher per capita
incomes, which in turn can improve the standard of living for a nation’s
citizens.
Greater profits for firms: allows expansion and can create jobs
Job creation: growth can help reduce unemployment rates and provide
individuals with greater financial stability.
Reduced poverty: growth increases access to education, healthcare, and
necessities leading to progress in reducing extreme poverty and
improvements in human development outcomes (HDI Index) such as
higher life expectancy.
Greater income equality: more jobs, less poverty reduce inequalities and
the associated social problems.
Increased government revenue: A growing economy generates higher
tax revenues – a fiscal dividend - that can then be used to fund better
public services such as education & healthcare.
Investment opportunities: growth attracts domestic and foreign
investment leading to innovation, increased productive capacity (LRAS),
and further job creation.
Improvement in environment: more efficient, green and cleaner
technology is used.
Costs of economic growth
Economic growth can lead to costs that affect all economic agents –
consumers, producers, workers & the government
Inflation: rapid growth can lead to demand-pull and cost-push inflation,
eroding real purchasing power and potentially leading to economic
instability.
Environmental costs: fast growth of GDP can lead to overexploitation of
scarce non-renewable natural resources, causing resources degradation
and depletion, compromising sustainability.
Income inequality: benefits of growth may disproportionately accrue to
certain segments of the population, leading to increased income &
wealth inequality as measured by the Gini Coefficient.
Financial instability: if rapid growth is fuelled by excessive borrowing
and speculative investment, this can result in financial bubbles and
subsequent crashes.
Wider trade deficit: rapid growth means consumers/businesses will buy
from abroad if home supply cannot grow fast enough increasing
imports.
Sacrificing current consumption: the opportunity cost of producing
more capital goods to boost productive capacity is a loss of the
production of consumer goods.
Human costs: growth may lead to less leisure time or more
stress/mental health issues for workers.
Kuznets curve
Kuznets curve suggests that economic inequality tends to increase during the
early stages of economic development, but then decreases as a country
becomes more developed.
Environmental Kuznets curve suggests that environmental pollution tends to
increase as a country’s income increases during the early stages of economic
development, but then decreases as a country becomes more developed.
