- Economic growth is the growth of real output in an economy over time. It is usually measured as growth in real domestic product (GDP).
Positive consequences of economic growth
- Increasing aggregate supply curve in the long run while aggregate demand increases in the short run leads to non-inflationary growth, i.e. real output increases while price stays the same.
- Increase in national income → Increase in levels of education, human capital, freedom and democracy.
- If GDP per capita increases → People’s income increases → Higher standards of living.
- Helped in technological advancements in areas such as medicine, household appliances, computers, audio-visual equipment, transportation, entertainment → Making lives of people much easier, pleasurable → Higher standards of living.
- Higher incomes → Higher tax rates → Government can spend more on public and merit goods → Higher standards of living → Redistribute income and reduce inequality.
- Improvement in competitiveness of a country’s exports → Aggregate demand increases.
Negative consequences of economic growth
- Higher incomes doesn’t necessarily result in higher standards of living.
- Might result in less leisure time and neglect of personal relationships as people are trying to work hard to stimulate the economy → Poorer standards of living.
- People who get rewarded more and more might get dissatisfied after a while.
- A structural change in economy → Increase in structural unemployment.
- Rapid economic growth → Higher emissions of greenhouse gases.
- Increase in income → Higher levels of household waste.
- Producing a higher level of output means nonrenewable resources are getting rare.
Paper 3 Questions
The following data is from a country’s national accounts: