L15 - Economic Growth: Evidence, Benefits and Costs Flashcards Preview

18ECA001 Principles of Macroeconomics Semester 1 > L15 - Economic Growth: Evidence, Benefits and Costs > Flashcards

Flashcards in L15 - Economic Growth: Evidence, Benefits and Costs Deck (12)
Loading flashcards...
1
Q

What are the benefits of economic growth?

A
  • Living standards
  • Life Style
  • Income Re-distribution
2
Q

What are the costs of economic growth?

A
  • Opportunity Costs
  • Personal and Social costs
  • Time distribution of Costs
  • Negative externalities
  • Growth and happiness
3
Q

Why is Opportunity Cost a cost of economic growth?

A
  • World of scarcity everything has an opportunity cost, including economic growth.
  • Growth usually requires an investment in capital goods, in education and health. -Such investments do not yield any immediate return
  • Growth, which promises more goods tomorrow, is achieved only by consuming fewer goods today.

This is a sacrifice of current consumption and this is the primary cost of economic growth

(SEE DIAGRAM)

4
Q

Why is Personal and Social Costs a cost of economic growth?

A

Personal costs - Continual reallocation of resources is necessary as innovation renders some people and their skills obsolete.

Social Costs - May be small for society they are very high for the individuals concerned and very unevenly spread.

e.g. industrial revolution destroyed the jobs of skilled textile workers and replaced them with unskilled factory jobs. Robots and computers (i.e. CAD/CAM) destroyed factory jobs in the 1980s

5
Q

Why are Distribution Costs a cost of economic growth?

A

Time Distribution: Costs of future growth are borne today whereas the benefits are reaped by the next generation! Consumption is surrendered today for higher consumption tomorrow; but the old today will not live to benefit from their sacrifice.

Geographical Distribution: Often regional and national losers and gainers from economic growth. (London v North of England

6
Q

Why are Negative Externalities a cost of economic growth?

A

Economic growth has lead to increased pollution.

Congestion on roads increases journey times; overcrowding on trains makes journey time more unpleasant

7
Q

Why are Growth and Happiness a cost of economic growth?

A

Growth does not make us happy! In the USA surveys show that the percentage of population feeling “very happy” was no higher in 2000 than it had been in 1960 despite a doubling of real incomes over that period

Pressures of competing in an ever more stressful world have lead to increases in depression and other stress-related illnesses.
Working longer hours reduces leisure time with family and friends which add to unhappiness.

8
Q

What is the definition of sustainability?

A

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The two concepts behind this are:
-The concept of ‘needs’, in particular the essential needs of the world’s poor, to which overriding priority should be given

  • The idea of limitations imposed by the state of technology and social organisation on the environment’s ability to meet present and future needs. (Refers to Resource Exhaustion and Resource Depletion)
9
Q

How has Resource Exhaustion expanded?

A
  • Since 1945 there has been a rapid acceleration in the consumption of the world’s resources. The world’s population has increased from under 2.5bn to over 6bn in that period: this increase alone has increased the demand for the world’s resources
  • Moreover as economic development spreads to more and more countries, living standards are rising. As people become richer they consume more resources.
  • Such continually rising living standards are unsustainable given current technologies. The problem is too many people aspiring to levels of consumption that cannot be sustained with existing technologies.
10
Q

What is the critical problem behind Resource Exhaustion?

A

Timing:
Will technology advance quickly enough to solve the problem before there is an unimaginable global, economic, political and social catastrophe

11
Q

What is evidence behind Resource Exhaustion?

A

When resources are scarce their prices tend to rise, but there is no evidence of sustained price rises.

-E.g. energy prices low in the 1960s, spiked in the 1970s declined from 1980 onwards until 2000. Food and agricultural raw materials prices generally have had a downward trend. Metal prices pro-cyclically but no change between 1962 and 2014.

The amount of resources and energy used per unit of GDP has fallen steadily over the past 200 years

12
Q

What are the problem behind Renewable Resources?

A

The demands placed on renewable resources threaten to destroy their natural recuperative cycle.
(Fishermen over-fishing)

The problem here is not so much growth as lack of management of the resources due to undefined property rights or lack of government jurisdiction