Effects of Growth

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Transcript Effects of Growth

Effects of
Negative AND Positive
Positive Effects of Growth
 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
 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
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
As cost of production increase, firms put up
the price for goods/services (inflationary
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
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