Costs and Benefits of Economic Growth for Living standards (With Evaluation) Flashcards
(36 cards)
How can economic growth lead to higher disposable incomes?
Firms earn more profit, possibly increasing wages or creating jobs, giving households more income to spend.
How does higher income improve living standards?
It improves both material standards (better goods, housing) and non-material standards (access to healthcare, education, public services).
Why does growth lead to higher employment?
Increased demand for goods/services means firms hire more workers, reducing unemployment and raising incomes.
How do higher profits benefit firms during economic growth?
Firms can reinvest in capital, which can trigger the accelerator effect — investment drives more growth, creating a cycle.
What is the accelerator effect?
When economic growth leads to higher investment, which in turn causes further economic growth.
What are potential environmental costs of economic growth?
Pollution, resource depletion, and environmental damage from increased production and consumption.
How can growth increase inequality?
Benefits of growth may go to the rich (e.g., shareholders), while wages may not rise equally for low-income workers.
What is a potential downside of overworking during growth periods?
Poor work-life balance and mental health issues, reducing non-material living standards.
How might growth lead to inflation?
Demand-pull inflation can occur if demand grows faster than supply, eroding purchasing power.
Why is growth not always sustainable?
Overuse of non-renewable resources and damage to the environment may hurt long-term living standards.
Eval: Does economic growth always improve living standards?
Not necessarily — depends on distribution of income, sustainability, and whether growth is inclusive.
When is growth most beneficial to living standards?
When it is inclusive, sustainable, and accompanied by low inflation and job creation.
What is a fiscal dividend?
The increase in tax revenues due to economic growth, giving the government more to spend.
Why does income tax revenue rise during growth?
Households earn more income and pay more tax.
Why does VAT revenue increase with growth?
Higher incomes lead to more consumer spending, increasing VAT collected.
How does growth affect corporation tax revenue?
Firms earn higher profits, leading to more corporation tax paid.
How can the government use the fiscal dividend?
To invest in education, infrastructure, public sector wages, and welfare.
Costs of Economic Growth: What is a major inflation risk during high growth?
Demand-pull inflation, especially if actual growth exceeds potential growth.
How does inflation affect living standards?
It erodes purchasing power, reducing the real benefit of income increases.
Why might growth not improve living standards evenly?
If growth is concentrated in one sector (e.g., capital-intensive), gains may not be widely shared.
What is the risk of capital-intensive growth?
Income mainly goes to owners of capital, not workers, worsening income inequality.
What geographic issue may limit the benefits of growth?
Urban areas may benefit more than rural ones, creating regional inequality.
Why can growth lead to regional inequality?
If growth is concentrated in urban areas, rural regions (e.g. agriculture) may be left behind, widening the income divide.
What happens if jobs created by growth are low-quality?
It can lead to underemployment — low pay, poor hours, and little job security.
