What impact does economic growth have on the cost of living?

What impact does economic growth have on the cost of living?

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Answer : When economic growth rate increase then total output level of the economy increase. By selling more output level people get more money. Due to getting higher money people invest more to produce more which increase the labor demand. Due to high labor demand the wage rate increase. Due to higher wage rate people get more money to spend. As a result, the aggregate demand increase which shift the aggregate demand curve to rightward. Due to higher aggregate demand the price level increase which increase the cost of living.

Similarly, when economic growth rate decrease then the total output of the economy decrease. Due to decrease in total output level people get less money to spend which decrease the aggregate demand. As a result, the aggregate demand curve shift to leftward. Due to decrease in aggregate demand the price level fall which decrease the cost of living.

Thus, economic growth effect the cost of living.

Rahul Sunny answered 1 year ago

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