Is Economic Growth Always Desireable

Topics: Inflation, Supply and demand, Economic growth Pages: 2 (704 words) Published: February 15, 2011
Is Economic Growth Always Desirable

When using the Keynesianism theory of aggregate supply and aggregate demand, economic can be both desirable and undesirable. Firstly, economic growth at its most basic level increases GDP and employment. If consumers are spending more money, whether it is by increased consumer confidence, lower interest rates or rise in house prices, companies usually see increased profits. As a result, they are more likely to invest in their business and expand its capacities. This, not only adds to economic growth, but also creates employment and further adds to GDP. This shifts the aggregate demand curve (AD) from AD1 to AD2 as per the diagram. This doesn’t affect inflation as prices stay the same, yet GDP and employment increase. For example, in the early 90s in the UK, employment was at 25 million, whereas 13 years later it was at 29 million, with low unemployment figures.

Quality of life also increases with economic growth. When the employed are earning more money and see their wages rise, they have more expendable income. These people no longer are spending to live, but are living to spend. Luxury goods and services are consumed, house prices rise, and government services also improve. These all improve the quality of life for consumers and the employed alike. It also increases the number of people who are living in poverty. For example in 1990 34% of people were living on under $1 a day, whereas in 2002 it was 22%. This was largely due to the 8% economic growth figures that many Asian countries felt in the latter half of the 20th century.

Increased economic growth also can help to improve the environment. As governments find themselves with more tax revenue, they can spend it on green energy and encourage businesses to invest in environmentally friendly ventures. This can be seen in the fact that ratio of energy consumption to GDP has decreased over the past 30 years, and as a country becomes a high end economy, it...
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