AS Economics – costs and benefits of growth.

With the AS Paper 2 next week here is a revision note on the costs and benefits of growth and a mindmap. This could potentially be a 12 mark question in Section C.

Costs of economic growth

1. Stress anxiety – hours of work may increase which causes stress and the requirement to come up with new ideas and improvements.

2. Opportunity cost – in order to increase the country’s productive capacity there could be the opportunity cost of having to produce more capital goods at the cost of more consumer goods. However this maybe a short-run situation as in the long-run increased investment will increase the output of both capital and consumer goods and services.

3. Pollution and degradation of the environment. In designing long-term policy for economic growth, governments need to be aware of the need to maintain a good balance between enabling resources to increase and safeguarding the environment.

4. Depletion of natural resources – higher output may lead to consumption of more oil, food and the loss of natural beauty.

5. Structural changes – workers may find it hard to learn new skills or have to change their occupation and live elsewhere.

Benefits of economic growth

1. Higher average incomes. Economic growth enables consumers to consume more goods and services and enjoy better standards of living. Economic growth during the Twentieth Century was a major factor in reducing absolute levels of poverty and enabling a rise in life expectancy.

2. Lower unemployment. With higher output and positive economic growth, firms tend to employ more workers creating more employment.

3. Lower government borrowing. Economic growth creates higher tax revenues, and there is less need to spend money on benefits such as unemployment benefit. Therefore economic growth helps to reduce government borrowing. Economic growth also plays a role in reducing debt to GDP ratios.

4. Improved public services. Higher economic growth leads to higher tax revenues and this enables the government can spend more on public services, such as health care and education etc. This can enable higher living standards, such as increased life expectancy, higher rates of literacy and a greater understanding of civic and political issues.

5. Investment. Economic growth encourages firms to invest, in order to meet future demand. Higher investment increases the scope for future economic growth – creating a virtuous cycle of economic growth/investment.

6. Increased research and development. High economic growth leads to increased profitability for firms, enabling more spending on research and development. This can lead to technological breakthroughs, such as improved medicine and greener technology. Also, sustained economic growth increases confidence and encourages firms to take risks and innovate.

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