lol Flashcards
What are the consumer benefits of economic growth? (more consumption)
Benefit is higher average incomes since there is a rise in real GDP.
A rise in real GDP will then imply that there is more money in or going into the domestic economy.
This means that businesses can make more profits, this allows for them to pay higher wages or hire more more employees.
As a result, GDP per capita/household rises which allows consumers to consume more goods and services.
What are the consumer negatives of economic growth? (more inflation)
A negative to growth is possible inflation which arises from when aggregate demand (AD) increases faster than aggregate supply (AS).
This is known as demand pull inflation, and is part caused by a boost in consumer spending.
As the real GDP grows and more money is going into the domestic economy, this allows for firms to provide higher wages.
Higher wages translates to more consumer expenditure which boosts demand and causes a rise in AD and inflationary pressure.
What are government benefits of economic growth? (more expenditure) (more public services)
Benefits are improved public services from the rise in real GDP.
Real GDP reflects the quantity of goods and services produce by an economy in a given year. The growth which leads to higher tax revenues from the sales of said goods and services.
This increased revenue enable the government to increase expenditure in certain areas of the economy.
Furthermore, if expenditure were directed towards healthcare or education, this can enable greater life expectancy or literacy rates. This benefits the government through a better quantity/quality labour force.
What are government negatives of economic growth? (more expenditure) (environmental/health concerns)
Negatives of economic growth may consist of health concerns.
A rise in real GDP will then imply that there is more money in or going into the domestic economy. This translates into firms and then to wages.
This enables greater consumption within the economy. Increased consumption of goods and services can lead to increased pollution.
Increased levels of pollution cause health risks especially amongst those of the population with asthma and therefore hurts their quality of life. If more of the population relies on the health service, governments will suffer since it drains more of the government’s potential expenditure.
How is the growth of TNCs is a main cause for globalisation?
TNCs are a key driver of globalisation because they have been re-locating manufacturing to countries with relatively lower unit labour costs.
Because of the lower unit costs, the spreading of manufacturers to LEDCs has enabled countries involved to become more globally connected.
Because globalisation refers to the increased interdependence of countries, TNCs help enable two or more countries reliant on each other for trading purposes.
How is the growth of TNCs a main cause for globalisation?
However, it can be argued the growth of TNCs and outsourcing results from factors such as the reduction in infrastructural costs.
Improvement in transport infrastructure means there are quick and cheap methods to allow production to be separated around the world.
Improvement in ICT infrastructure simultaneously allows companies to operate across the globe since it allows for cheap and quick methods for TNCs to communicate within themselves and those they operate with.
The ways globalisation can increase inequality in the world economy?
One way globalisation can increase inequality is through the effects of increasing specialisation and trade
If a country can now import cheaper products from elsewhere, then there will be a contraction in domestic supply and a fall in employment and real incomes in that industry.
As reflected by the labour supply graph, there will less demand for workers in the industry that is being outcompeted by the cheaper imports.
This can lead to higher rates of structural unemployment and a decline in real living standards. Real wages come under downward pressure and inequality can increase.
The ways globalisation can increase inequality in the world economy?
However, one could argue that the benefits of globalisation can be used to offset this. If trade generates faster GDP growth, then the government will see an increase in tax revenues.
This might then be used to fund capital investment in public goods and merit goods and services including finance for re-training programmes and improvements to infrastructure in economically depressed areas.
Because of the re-training programmes, the unemployed won’t be structurally unemployed since they can learn new skills used in other industries not facing decline.
Much depends on whether a government has sufficient resources and political will to implement an active regional and industrial policy to improve employment prospects for those negatively affected by globalisation.
How does the financial market help with economic growth?
The financial market allows people to transfer spending power for future purposes in savings accounts, stocks, and shares.
According to the Harrod Domar model, an economy’s rate of growth depends on levels of national savings and capital-output ratio. If there is a high level of saving in a country, it provides funds for firms to borrow and invest.
Since investment is factor in a nations AD, investment can will expand AD to the right.
As a result of this expansion, economic growth through the increase in production of goods and services will take place, as reflected by the increase in RGDP.
What are the limitations of the Harrod Domar models on creating economic growth?
However, increasing the savings ratio is easier said than done. Increasing the savings ratio in lower-income countries is not easy. Many developing countries have low marginal propensities to save.
At low-income levels, consumers will be buying all the necessities of life.
Because of this, extra income gained will often be spent on increased consumption rather than savings.
Many less developed economies will then suffer from a persistent domestic savings gap, the deficit between current aggregate savings and the level of savings required to provide funds for business investment.
Since savings are needed to help provide finance for capital investment which itself is a key component AD and LRAS, this implies that the model fails as growth model since it fails to explain how growth has occurred or how it may occur again.
