Question

Question: Description of Economic Growth

*definition,

*measurement

*effects

Answer 1

--> Economic growth is an increase in the production of goods and services in an economy. Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth. Economic growth is commonly measured in terms of the increase in aggregated market value of additional goods and services produced, using estimates such as GDP.

--> The effects of economic growth:---

a)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.

b)Lower unemployment :-- With higher output and positive economic growth, firms tend to employ more workers creating more employment.

c)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.

d) 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 e.t.c. This can enable higher living standards, such as increased life expectancy, higher rates of literacy and a greater understanding of civic and political issues.

e)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.

f) Increased research and development :-- High economic growth leads to increased profitability for firms, enabling more spending on research and development. Also, sustained economic growth increases confidence and encourages firms to take risks and innovate.

---> Positive impact of economic growth depends on the nature of economic growth. For example, if economic growth leads to more pollution and congestion, then living standards may not seem to hit. It also depends on the distribution of economic growth – who benefits from economic growth. If growth benefits primarily the richest in society, growth may do little to overcome poverty.