Economic growth is a long run increase in an economy’s potential output and real income, which increases the economy’s living standards and also increase their GDP. There are many ways of getting economic growth, it can do a lot of good to the economy but there is also a downside to this as it can also cause problems for the economy as well. Economic growth is the increase in growth of a country’s total capacity to be able to produce and provide goods and services.
This will show the country’s maximum potential growth and not just its actual growth as it uses up the unemployed workers, which means we would be increasing our output per worker. For countries to get economic growth they should improve their environmental issues, they should get rid of the unnecessary or unproductive secondary industries and bring in more tertiary industries, they should provide more and better services, they should spend more money on these industries as well.
Tertiary industries such as education, healthcare and leisure will help and increase human development which is good for the economy, as it will allow as to become more productively efficient. Economic growth also improves our national welfare through an increase in our total output in goods and services. This means we could have more of everything due to an increase in potential and actual growth rates to generate more of the resources that are needed and more public finance. This increase in availability of more resources will reduce our economic problem of relative scarcity.
A good economic growth also depends on the type of government and how they spend the money, how they inject it into the economy. The government can improve an economy’s growth by imposing a progressive tax system, by setting reasonable regulations for those who inflict negative externalities on our environment. Tax regulations should be imposed for industries dumping waste, causing pollution or road congestion etc. The money that is collected by the government from the regulation should be spent wisely on improving the quality of life.
This is done by spending more on education, healthcare and transport thus also improving the environment. This will allow us to enjoy better living standards and will allow real growth which means more money for households to spend on consumption and because of this a government that is wise and knows what its doing is required. Growth allows the poor out of absolute poverty, by creating more jobs, reducing the unemployment level which should make real incomes grow also it will allow equity amongst society.
The downside to this is that as well as taking the poor out of poverty it also makes the rich even richer so in reality equity isn’t really achieved, all this does is increase living standards but it increases for everyone including the rich. By keeping a steady growth in the level of AD and continuing spending like Britain has done for past 11 years therefore should increase people’s confidence meaning that they won’t be afraid to spend more and also should increase public and private investments.
This long term growth will increase a country’s prestige and its power, which means this will allow the country to participate in international negotiations such as the IMF which will allow the country to build powerful and stable defence forces, they also will be able to trade at the WTO. Growth can also be achieved by supply side reforms, this will allow an increase in productivity (output per worker) as well as total output (total production) making workers more efficient and putting land and capital to more use. S.
S reforms also include privatisations which will allow more firms to come into the same market, which will increase competition and efficiency amongst these firms. S. S policies reform unions this will also increase competition and efficiency and will stop workers from slacking off. If there is competition amongst firms then they will become more efficient thus lowering their prices and providing better quality goods and services meaning we can purchase cheaper goods and services and yet enjoy better living standards.
Allocative efficiency is required so that the right amount of the right product is produced, this is so that resources aren’t put to waste and we don’t end up producing goods which no one will want to buy, allocative efficiency is good because it will maximise welfare. This means resources are reallocated in the most efficient way so that we don’t end up harming the welfare of another. Productive efficiency is also required this means producing goods at the lowest possible cost, so that when it comes to selling they can be sold at lower prices, then they were before when productive efficiency wasn’t in use.
The downside to this is that for some industries lower cost may result to a reduction in the quality of the good or service as well, such as chemical industries. Economic growth can also cause a lot of bad things to occur as well. The rich and the better off may gain more as the distribution of income may help them more and the poor just a little, meaning that equity will suffer. This can be moderated through tax changes, by imposing progressive tax on the rich and redistributing this tax to the poor through benefits.
This depends on the type of government and how they decide on spending the money collected from taxes. The environment may also suffer if there is heavy industrial growth, even the service industries can affect and worsen the environment as well, such as gas companies. Due to us having higher living standards, meaning that we go out and travel more using cars, the need of more houses means we will need to get rid of green land and problems with congestion and pollution will tend to occur more. This can be controlled by the government as they can use whether to improve the environment or not using tax revenues.
In this case sustainable growth is required, this means that we allow growth to continue without damaging future growth and the interests of future generations. This can be done through protecting non renewable resources as well as recycling renewable resources so that resources don’t become scarce. Growth will cause many things to change and may cause on individuals, families and society. Growth requires a lot of change, people will need to learn new things, they will need new skills, jobs in old industries will be lost as tertiary becomes more popular and traditional societies and family links are threatened.
The society and individuals may not want these changes even though it helps the economy, but the problem is its effective in a long run, growth can’t happen straight away. This is why many people go against getting rid of old industries as their jobs will be lost and they may not be able to find an alternative straight away due to lack of skills. Overall I think growth is good for the economy as it does more good than bad for the economy, but the problem is that the good that’s going to take place takes a long time to take affect, which means its bad for short term but good for future generations.