Growth

Question 1

State + explain the macro effects of growth.

Answer 1

• Higher Incomes: improvements in living standards + poverty alleviation.
• Lower Unemployment: with higher economic growth, more jobs are created - L as a derived D.
• Inflation: if growth comes from higher AD - may get demand-pull inflation.
• Current Account: worsening of CA position - sucking in of M - as people get richer, as well as X being less competitive - with higher inflation.
• Improvement In Government Finances: higher economic growth - higher incomes - higher income tax / corporation / VAT / tariff revenues.

Question 2

State + explain the micro effects of growth.

Answer 2

• Environmental Market Failures: with higher uncontrolled, unrestrained economic growth - NE in production.
• Income Inequality: potentially worsens depending on where growth has come from.
• Individual Happiness: question whether higher growth / incomes is the only thing that improves individual happiness. A lot more to individual happiness than just higher incomes (e.g. infrastructure improvements, gender equality, health improvements, etc).
• Profits + Dynamic Efficiency