Economic growth is the increase in the amount of the goods and services produced by an economyover time.GDP = the total amount of final goods and services produced in one year within a country
There are 4 factors that influence economic growth within a country
Nations that invest in the health, education, & training of their people will have a more valuable workforce that produces more goods & services
The more capital goods a country has = the more goods & services they are able to produce = the more money they can make!Examples: tools, equipment, factories, technology, computers, lumber, machinery, etc.
Countries that have a lot of natural resources are able to use them to produce goods & services cheaper than a country that has to import natural resources
These people risk their own money and time because they believe their business ideas will make a profitThey bring together natural, human, and capital resources to produce foods or services to be provided by their businessesEntrepreneurship creates jobs and lessens unemploymentEncourages people to take risks, and in doing so, they create better healthcare, education, & welfare programsThe more entrepreneurs a country has, the higher the country’s GDP will be…
Growth stimulates higher employment. With higher output firms tend to employ more workers creating more employment.Economic growth normally has a positive impact on company profits & business confidence – good news for the stock market and also for the growth of small and large businesses.
Economic growth creates higher tax revenues providing the government with extra money to finance spending projects .Economic growth results in increased per capita income due to which living standard of people is improved.
higher consumer demand leads to higher investment level.
Economic growth does not come risk-free. if the economy grows too quickly, it can bring about short and long-term problems.
There is the danger of demand-pull and cost-push inflation if demand grows faster than long run productive potential High and rising inflation can be destabilizing for an economy because it puts pressure on interest rates to rise and can cause a loss of competitiveness for domestic businesses in international markets
Expansion and growth brings with it the problems of pollution – often developing countries do not have the infrastructure to cope with the waste generated nor the legislation or regulation to influence those who produce it.Increased economic growth will lead to increased output and therefore increased pollution and congestion. This will cause health problems such as asthma and therefore will reduce the quality of life
Not all of the benefits of growth are evenly distributed. We can see a rise in real GDP but also growing income and wealth inequality in society which is reflected in an increase in relative poverty. growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. Although average living standards may be rising, the gap between rich and poor can widen leading to an increase in relative poverty and a widening of the gap between different regions.
increased output puts further pressure on the available land. This may gradually erode the available countryside.
Cost and benefits of economic growth
Economic GrowthFactors of Economic GrowthBenefits of Economic GrowthCost of Economic Growth
Increase in total output of theeconomy Measured by country’s GDP3
Human Capital Capital Goods Natural Resources Entrepreneurship4
Human Capital:It includes education, training, skills, andhealthcare of the workers and the value thatthey bring to the country’s economy.5
Capital Goods:All of the goods that are produced in thecountry and then used to make other goods &services6
Natural Resources:All of the things found in or on theearth; “gifts of nature”7
Entrepreneurship:People who take the risk to start and operatea business8
Higher employment Improved business confidence Increased tax revenues Improved living standard Higher investment Potential environment benefits Improvement in welfare9
Higher employment:With higher output firms tend to employ moreworkers creating more employment. Improved business confidence:Economic growth normally has a positive impacton company profits & business confidence10
Improved living standard:Growth leads to better living standard andlow poverty rates. Increased tax revenues:Economic growth creates highertax revenues providing the government with extramoney to finance spending projects .11
Higher investment:Higher consumer demand leadsto higher investment level. Potential environment benefits:Richer countries have more resourcesavailable to invest in cleaner technologies.12
Improvement in welfare:Increase in economicgrowth of a countryleads to its ability toprovide support forelderly, homeless andorphaned people.13
Inflation Environmental concerns Inequalities of income & wealth Balance of payment deficit Loss of land14
Inflation:If AD increases faster than AS then economicgrowth will be unsustainable. The output gap willnarrow causing inflation to increase.15
Environmental concerns: Pollution Over farming reduces productivity of soil Deforestation Damage to eco-systems Non-renewable resources(finite resources)16