MACRO - LS10 - Economic Growth (Part 2)

Question 1

Benefits of economic growth

Answer 1

• consumers can buy more goods/services
• life expectancy increases, as it’s associated with income
• have enough to eat & drink
• higher housing standards
• more can read/write - better education
• health tends to be better, less poverty
• causes higher tax revenue, better gov’t finances, more public & private sector investment, increased productive capacity

Question 2

Costs of economic growth

Answer 2

• inflation
• current account deficit
• pollution
• use of non-renewable resources increases - eventually run out causing collapse
• inequality
• congestion
• disease of affluence - wealthy spend on harmful things due to disposable income e.g bad food/alcohol

Question 3

Does increase in GDP cause an increase in happiness

Answer 3

• some argue yes at low levels of income - as it improves wellbeing when basic needs aren’t being met such as food, shelter
• not at high levels of income - as basic needs are being met so increase doesn’t have much of an affect now
• known as Easterlin Paradox

Question 4

Who is impacted by economic growth

Answer 4

• consumers
• firms
• government
• environment
• economy
• current & future living standards

Question 5

Consumers

Answer 5

• income rises - buy more goods & services
• benefit may only go to wealthy and not average households- seen in most of US over last 30 years

Question 6

Firms

Answer 6

• increase sales - buyers have more income
• also means new firms can establish themselves
• firms can invest more & expand
• changing technology may mean that some firms may find their markets disappearing

Question 7

Government

Answer 7

• rising tax revenues
• as private sector spending increases, leads to similar demand for public sector spending
• taxes depend on who is in power
• right-wing governments are more likely to reduce tax rates & government services compared to the left wing

Question 8

Environment

Answer 8

• in richer, developed countries, economic growth is more likely to lead to decrease in pollution & cleaner environment
• economic groups more likely to spend on tech/projects to improve environment
• developing countries growth in primary & secondary industries is more likely to increase pollution/degrade environment

Question 9

The economy

Answer 9

• as GDP increases, economy becomes larger
• may result in more jobs being created
• can result in less jobs if existing workers become more productive

Question 10

Current & future living standards

Answer 10

• depends on who receives benefits of economic growth
• if only richest in society then no impact on majority of society
• in developing countries everyone is likely to benefit