Discuss the costs and benefits of economic growth
Discuss the costs and benefits of economic growth.
PLAN
Economic growth an increase in the amount of goods and services produced per head of the population over a period of time. Economic growth is measured as the increase in real GDP over a given period of time, usually a year. This figure is expressed as a percentage. Real GDP can be defined as an inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. In the long run, the rate of economic growth is determined by the rate at which the economy’s capacity (productive potential) increases.
Current growth is usually caused by an increase in aggregate demand. This draws on the economy’s spare capacity, closing the output gap, and bringing unemployment resources into use. Another way of looking at this is that it takes the economy closer to its production possibility frontier. Such growth is not sustainable and will be brought to an end once the economy has no more spare capacity. Further increases in aggregate demand would be purely inflationary once this point is reached.
The graph above shows economic growth. This can be caused when a component of aggregate demand such as investment rises which cause the aggregate curve to shift right from AD to AD2. This will result in the real GDP to increase from Y1 to Y2 and cause economic growth.
Economic growth has many advantages such as higher economic growth should lead to an increase in living standards as measured by real GDP per capita. The effects of growth are cumulative, therefore if a country grows at 3% per annum, the economy will double in size every 24 years. Growth helps make future investment more affordable. Economic growth should also reduce unemployment. When output in the economy increases there should be an increase in the demand for labour. This is because labour is a derived demand (a demand for a service which is a consequence of the demand for something else), that
PLAN
Economic growth an increase in the amount of goods and services produced per head of the population over a period of time. Economic growth is measured as the increase in real GDP over a given period of time, usually a year. This figure is expressed as a percentage. Real GDP can be defined as an inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. In the long run, the rate of economic growth is determined by the rate at which the economy’s capacity (productive potential) increases.
Current growth is usually caused by an increase in aggregate demand. This draws on the economy’s spare capacity, closing the output gap, and bringing unemployment resources into use. Another way of looking at this is that it takes the economy closer to its production possibility frontier. Such growth is not sustainable and will be brought to an end once the economy has no more spare capacity. Further increases in aggregate demand would be purely inflationary once this point is reached.
The graph above shows economic growth. This can be caused when a component of aggregate demand such as investment rises which cause the aggregate curve to shift right from AD to AD2. This will result in the real GDP to increase from Y1 to Y2 and cause economic growth.
Economic growth has many advantages such as higher economic growth should lead to an increase in living standards as measured by real GDP per capita. The effects of growth are cumulative, therefore if a country grows at 3% per annum, the economy will double in size every 24 years. Growth helps make future investment more affordable. Economic growth should also reduce unemployment. When output in the economy increases there should be an increase in the demand for labour. This is because labour is a derived demand (a demand for a service which is a consequence of the demand for something else), that