Costs And Benefits Of Economic Growth

Micro 2 Aman Chatterjee Discussing the costs and benefits of Economic growth. (18) Economic growth is when in the short run an increase in real GDP is achieved and in the long run it is an increase in productive capacity or the maximum output an economy can produce. The UN's objective regarding economic growth is to achieve a state of steady and sustainable economic growth. One way in which economic growth is desirable is that it may lead to higher employment levels. This is due to the fact that companies and firms will be expanding due to the increase in the profits as their output is increasing. As the companies are expanding they need a larger labor force to fill these jobs so unemployment falls. An increase in real GDP and this means that more people are employed. This leads to an increase in living standards. Also the quantity of labor shown to increase in employment can be greater. This increase in employment can shift the production possibility curve. As can be seen on the production possibility curve, the production of goods and services shifts from A to B due to the increase in the quantity of labor. Furthermore, this may lead to an increase in exports, being increased and the balance of payment will shift closer to equilibrium. Another way in which economic growth may be desirable is that it may lead to an improved fiscal position. As more people are employed, the government may have more to spend on benefits and health. This means that the quality of living may increase due to the increased levels of spending on education by the government. Further, the quality of life will improve as health standards will also improve. Also economic growth may lead to an increase in tax levels and this can be beneficial as it means that the government has a bigger budget to spend on services. Economic growth may also lead to an increase in production and output from the economy due to an increase in private investment. Levels of private investment may increase as economic growth may lead to an increase in real disposable income which will increase the demand for goods and services. Also, the fact that firms' profits levels are likely to be relatively high may encourage them to expand their capacity. This will also encourage them to invest in the economy. This will also encourage them to invest in the economy. Virtuous cycle: An increase in profits provides the firm with financial resources to invest. This investment leads to an increase in private investment confidence. This increase in private investment leads to an increase in the amount of money in the circular flow of income, which will lead to an increase in the production of goods and services and wages for workers. However, economic growth may not always be desirable. One way in which economic growth may not be desirable is that it may lead to higher inflation. If economic growth is driven up rapidly, increasing demand for goods and services more than the supply, inflation is likely to occur. Inflation may reduce the standard of living as people cannot afford the same amount of goods and services with their real wages. The decrease in real wages may also lead to a fall in living standards. Inflation may also reduce the purchasing power of households, leading to further economic slowdowns. Households may seek to buy more than they can afford to reduce uncertainty about what prices will be in the future. Inflation also reduces consumer confidence and investment as firms are uncertain about what their costs will be and what prices they will receive from selling their products. Another way in which economic growth may be undesirable is that it may be unsustainable. This means that it may not be possible to maintain the current level of economic growth in the long run. means that resources which that are unsustainable will be quickly used up and there will be very little resources left for future generations. This rapid use of resources will lead to severe impacts on the environment. An increase in pollution and will have a global warming and the destruction of ecosystems. The significance of this point depends on the quantity of resources available and how whether economic growth will be achieved through the rapid misuse of resources or through other means. Furthermore, economic growth may involve long working hours, changes in culture, movement of labor, and the loss of family ties. This means that levels of happiness among the population may decrease as they are having to work these long hours in order to achieve this economic growth. Also, the majority of labor will move to the large cities, leading to congestion and overcrowding in the cities, which may lead to a decrease in the quality of living in both the cities and the rural areas where the workers came from. As there will be very little production coming from these areas, the overall happiness of the population may decrease and this could lead to decreased output from the workers, as they may not be working as efficiently.