Transcript Effects of Growth
Effects of Growth Negative AND Positive Positive Effects of Growth Increases in: Employment Household incomes: due to increases in employment Household consumption: increased incomes leads to increased spending Household saving: as HH’s earn more, they spend some of the extra income. The remainder extra income will be saved, or reduce debt Investment (and therefore MORE growth): existing capital resources will be better utilised (increase ‘capacity utilisation’) then as the economy grows there will be more investment in additional capital goods (therefore more growth). Increased taxation revenue: increased HH income results in an increase in tax being paid to the Government. Standard of Living??? Negative Effects of Growth Resource depletion: as the economy increases production, consumption of natural resources increase. Environmental damage: increase in production results in a trade-off; our desire to consume more G&S’s vs. damage to the environment (due to increased levels of pollution). Unwelcome social change: people become more wealthier and more G&S’s are available. Consumption of greater quantities of certain goods that is un-advisable creates increasing health problems (social change). Inflation: if an economy is producing at it’s productive capacity and there are increases in demand (not accompanied with increase investment) will result in price increases. Uneven impact of growth: not everyone benefits equally from economic growth. Some geographic areas may benefit more than others, some occupations may be more in demand than others (hence these people will experience greater increases in incomes than others) Effects on Inflation Demand Pull: Higher incomes due to increased employment will lead to higher levels of demand (consumer spending) which will in turn create demand pull inflation. More Government spending due to increase in income tax. Firms sales increase therefore invest in more capital to produce more goods/services. Net exports (X-M) increase as exported goods increase (more sold overseas) Cost push Inflation Cost push: scarce resources are higher in demand therefore price of these rise. This causes cost push inflation (using AD/AS model) As cost of production increase, firms put up the price for goods/services (inflationary pressure) Effects on Trade With increased demand for resources by firms (some of these coming from other countries) will increase imports. E.g. diesel/petrol. Higher goods. incomes will increase demand for imported With increasing levels of production more goods will be exported to other countries. As we invest more in capital goods and technology we maintain competitive prices (being able to produce goods at lower prices) and also competitive goods (improving the quality of our goods), therefore allows us to increase our market share.