Cost and Benefits of Growth Flashcards
What are the benefits of economic growth?
1) Households will have higher disposable income. Firms are making higher profits so this may cause higher salaries. People may be getting into jobs because the economy is doing well. Existing works will be more productive or promoted as well.
2) Higher employment. Economic growth means more demand for goods and services and so firms will employ more to meet demand.
3) Firms make higher profit. Households earn and spend more and so it increases profits for firms. Firms can then invest using profit to get even more. This is also good for the economy as it can trigger the accelerator efect.
4) Fiscal dividend for gov. This means more tax revenue for the government.
What are the costs of economic growth?
1) Demand-pull inflation. As demand increases, theres more pressures on existing fop for firms. So prices will start to rise, eroding purchasing power.
2) Income inequality. Income is not equally distributed. If growth comes from one main sector, higher incomes will stay there. This may cause an income divide.
3) Environmental costs. Economic growth may destroy the environment. EG: deforestation, air pollution
4) Current account deficit. Higher incomes means imports will rise. If they become greater than exports, we there may be a deficit.
What are some evaluation/judgement points?
1) We want sustainable growth. Therefore growth with inflation and environmental costs is an issue.
2) We want inclusive growth we everyone benefits.We want balanced growth, wheres there growth from all sectors
4) Theres a role for priv sector to pay their workers well and invest well. This is so growth can continue overtime.
Theres also a role for gov to ensure tax revenues are being used properly and to ensure supply side policies are in place.
