2.5.4: The Impact of Economic Growth

Question 1

What are some of the impacts of economic growth on consumers (advantages) ?

Answer 1

• More jobs, leads to higher wages, leads to increase in disposable incomes
• Increase in consumer confidence
• Increase demand for housing, leads to increased house prices
• Increase value of shares as well
• Increased value of houses and shares leads to the a positive wealth effect

Question 2

What are some impacts on consumers (disadvantages)?

Answer 2

• Demand pull inflation
• could lead to increased inequalities and so
  may not have any effect on the average consumer

Question 3

Impacts on Firms (advantages)

Answer 3

• Increase in investment
• Higher profits/ sales
• Greater innovation through investment
• Increase in productive potential

Question 4

Impacts on Firms (disadvantages)

Answer 4

• Higher inflation, leads to higher menu costs/ higher costs of production
• If growth is unsustainable, workers are less productive

Question 5

Impacts on the Government (Advantages)

Answer 5

• Higher tax revenue
• Lower spending on benefits
• Opportunity to invest more in public goods
• Budget surplus (cash inflow)
• Lower unemployment

Question 6

Impacts on the Government (Disadvantages)

Answer 6

• If there is more consumption in the economy, there will be more consumption on demerit goods, which produces negative externalities