Question

8. Is high consumption good or bad for economic growth? Why

Answer 1

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Abstract

If we see in general there are three main factors that drive economic growth , first the accumulation of capital stock, Second the Increases in labor inputs, such as workers or hours worked and third factor is technological advancement.

Along with this the rise in the consumption is forth factor that is lead to increase in economic growth and that is the output of above mentioned three factors

For Example, an increase of 1% in consumption expenditures increases economic growth by 0.41%. While a 1% increase in investment expenditures raises economic growth by 0.25%,

But the impact of the increase in portfolio investments on economic growth is positive but insignificant , Therefore Consumption expenditures follow the saving rates.

Consumption is one of the bigger concepts in economics and is extremely important because it helps determine the growth and success of the economy.

Obvious reason behind it that businesses can open up and offer all kinds of great products, but if we don't purchase or consume their products, they won't stay in business for very long.

Higher GDP implies the economy is producing more goods and services and therefore consumers can enjoy more goods and services. If human welfare is linked to consumption then growth will benefit society. That the reason that we need high consumption of goods and services

Higher levels of consumption will help to reduce any incidence of absolute poverty, when people can’t meet basic necessities of life for Example, Food, Shelter and Cloths

This may not be so obvious for developed countries, like the UK and US, but for developing economies, economic growth and rising incomes play a big role in lifting people out of poverty and it can be achieved through increase the production efficiency and higher rate of consumption

However this can occur through an increase in consumer spending or an increase in products produced.

Therefore high consumption is good for economic growth and below are the reason behind it

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