The Desirability of Economic Growth

The Desirability of Economic Growth

The Benefits of Economic Growth

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1. Economic growth means that real GDP has increased and therefore

leads to an improvement in the material standard of living. This means

that individuals have higher levels of real purchasing power enabling

them to buy a greater volume of goods and services - increasing

economic welfare ( bearing in mind individuals have unlimited wants ).

For instance, as western economies have grown over the decades

consider the changes in 'material ownership' of products such as

ownership rates of cars, dishwashers, housing, the number of foreign

holidays taken - all of which have continued to increase as real

spending power has grown.

2. Higher real incomes have enabled individuals to have greater access

to leisure time / activities. People can now satisfy their basic wants

more easily, with less time worked and hence devote more time to

leisure as they do not have to work as long to afford the basic

necessities for life.

3. As the economy grows, governments are able to collect more tax

revenues without increasing tax rates. This allows more resources to

be put into merit and public goods such as education and health

services, as well as funding more social security provision. Thus

better social services can emerge with the population gaining better

access to medical treatment or enjoying better education - helping to

improve living standards generally. Individuals will also have more

confidence that the state will have the resources to look after them

if they become unemployed or in need or support in the community.

( It could even be argued that those economies which have high levels

of real GDP command m...

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...ke some time before the inflation differential

between itself and its trading partners starts to make a difference -

so we must be realistic !! )

2. Fast economic growth, irrespective of the impact on inflation will

worsen the balance of payments, as imports are increasingly purchased.

3. However, if inflation does creep-up then the problem that arises is

the corrective action taken by the Monetary Policy Committee ( in the

UK's case ) in raising interest rates. This is the automatic trigger

that follows inflationary rises, as interest rates choke off excess

demand. The problem is that higher interest rates depress economic

activity, and can lead to firms having to lay-off workers as sales in

the economy fall. Thus, the overheating economy may trigger a harsh

period of high interest rates to cool inflation in turn imposing

unemployment on the economy.