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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 ... – PowerPoint PPT presentation

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Title: 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 HHs 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
  • Environmental damage increase in production
    results in a trade-off our desire to consume
    more GSs vs. damage to the environment (due to
    increased levels of pollution).

  • Unwelcome social change people become more
    wealthier and more GSs 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 its
    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
  • 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 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.
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