'Economic growth is always beneficial to an
economy. To what extent do you agree with this
statement?'25 marks 25/25 achieved
Economic growth measures the rate of change in a country’s output, it’s an expansion of the productive
potential of an economy, an increase in Real GDP. Growth comes from an expansion of both the quantity
and quality of factor inputs reflected in higher productivity and the growth enhancing effects of innovation.
Economic growth can be very advantageous for an economy as it results in low unemployment, increased
fiscal dividend, higher profits and investment thus enabling growth to persist over time. In this essay, I will
explore the benefits and costs of economic growth and explore whether economic growth is ‘always’
beneficial to an economy.
Economic growth can be extremely beneficial for an economy as this can result in a fall in unemployment.
Since labour is a derived demand and demand for goods and services are increasing, firms are going to
require more workers in order to produce extra output; this reduces unemployment in an economy thus
lowering absolute poverty. Furthermore, as there are more people employed in an economy, factor incomes
will rise therefore increasing consumption, stimulating AD and material and non- material standards of
livings increase. The multiplier effect that this increase in consumer spending generates can materialise an
even greater increase in growth and income. Economic growth can also be extremely beneficial due to the
fiscal dividend it provides for the government. With greater levels of economic growth, tax revenues from
income tax, corporation tax, VAT will rise. Greater levels of tax revenue will result in the government
having more money to spend on public services in the economy such as education and healthcare. With
money being invested into these vital services, this will improve the inputs and result in long run economic
growth. With the government spending on education this will improve the skills and therefore productivity
of the labour force, improving human capital. Additionally, this reduces structural unemployment as people
will have the skills to fill job vacancies in the economy thus increasing the quality of labour and thus long
run aggregate supply. Moreover, economic growth allows absolute poverty to be reduced; households are
able to educate themselves, consumer more, have greater access to healthcare thus aiding in improve their
living standards. Since 1990-2010, China’s production doubled and this resulted in 600 million people lifted
out of absolute poverty; their access to sanitation, clean water was much greater than before and social
mobility had increased for many. China’s situation depicts how beneficial and advantageous economic
growth can be for an economy as it highlights the improved living standards and material wellbeing they
experienced. Overall, this enables economic growth to persist over time and enables people to feel the
positive, favourable effects of this on themselves.
On the contrary, rapid increases in national income can result in an increase in relative poverty and income
inequality. With rapid, unsustainable increases in growth it is likely that only one group, the wealthy,
experience the benefits of economic growth therefore resulting in greater inequality amongst those who
are poorer. The rich tend to see greater benefits as they own assets and have high paying jobs in contrast to
the poor who don’t have these; this is why economic growth isn’t always beneficial. Furthermore, corrupt
governments may prevent the effective redistribution of income from higher levels of GDP and increases in
tax revenue promoting income inequality in society. Consequently, the poor may see no or little
improvements in their living standards and absolute poverty may remain or increase. In China, there are
huge regional disparities; the Gini coefficient measures income inequality and in China this figure was 0.3 in
,1980 and then 0.52 in 2015. These figures depict an increase in relative poverty which can result in issues
such as geographical immobility of labour and also regressive impacts on the poor. In 2008 (UK) the top 1%
income earners contributed to 50% of GDP growth thus capturing an in equal distribution of income
consequently reinforcing the fact that GDP growth and economic growth doesn’t truly encapsulate living
standards within a country. Additionally, this highlights that there needs to be other measures such as
composite indicators like the HDI which should be used alongside Real GDP in order to see whether
increases in economic growth actually translate into higher living standards.
Moreover, economic growth is likely to result in increased profitability for firms. With more demand and
higher household disposable incomes, firms can sell more goods and services thus resulting in increasing
revenues and profits. Consequently, firms with have higher retained profits to finance investment increasing
both short run and long run economic growth through the accelerator process thus enabling growth to
persist over time. The accelerator effect occurs when an increase in national income (GDP) results in a
proportionately larger rise in capital investment spending, there’s often surge in capital spending by
businesses when an economy is growing quite strongly and experiencing economic growth .In addition,
economic growth enables firms to invest and diversify their services into green technology, infrastructure,
new industries etc. which enables firms increase their competitiveness. Investment into capital spending
and technology will increase aggregate demand, shifting it to the right, if there is spare capacity within an
economy, then increased investment and a rise in AD will increase the rate of economic growth.
Furthermore, investment will shift LRAS to the right and if investment results in an increase in productivity
this may also lead to an increase in the long run trend rate of economic growth.
Conversely, unsustainable rises in economic growth can result in inflationary pressures as growth is
unsustainable and is higher than the long run trend. Unrestrained economic growth will accelerate demand
pull inflation, this is because if aggregate demand is increasing faster than aggregate supply there are
excessive pressures on existing factors of production therefore increasing the price of them, as shown in my
analysis diagram below with P1 increasing to P2, thus resulting in higher prices throughout the economy.
High inflation brings about a number of costs associated with it such as a loss of international
competitiveness thus deterring people purchasing a country’s exports, a fall in purchasing power, erosion of
saving, fiscal drag and these all can be detrimental to individuals, firms and the government. Additionally,
future generations should be able to benefit from and experience the same economic growth as the current
generation. This involves growth without inflationary pressures, costs to the environment and growth with
the risk of resource depletion. In order to reduce these effects and the risk of inflation conflicts, there should
be persistent increases in LRAS through supply side policies.
,Is summation, although economic growth positively impacts an economy, it is not always beneficial.
Economic growth can be vital to an economy as the benefits are widespread and enable growth to persist
over time; it leads to lower unemployment, increased fiscal dividend for the government, higher investment
from firms and in public services and helps to reduce inequality. All these benefits are substantially
significant to an economy as it results in higher living standards and material wellbeing. However, the
benefits of economic growth depend upon whether growth in sustainable, inclusive and sustained.
Economic growth at unsustainable levels can result in inflationary pressures, depletion of resources and so
in this sense if economic growth for the current generation comes at the expense of the future generation
then it’s not beneficial. Taking into consideration the negative and regressive effects of income inequality as
a result of economic growth, this elucidates how it isn’t always beneficial for an economy as it decreases
living standards and means the rich benefit at the expense of the poor. Economic growth is crucial, valuable
and beneficial for an economy however the drawbacks should try to be minimised and it’s imperative that
everyone benefits and economic growth is at sustainable levels. The most important factor is that all groups
within society benefit and feel the positive effect of economic growth not just one as this is crucial in
reducing the inequality within economies. Thomas Piketty observed that without sufficient policies of
redistribution, the wealthy tend to increase their wealth at a faster rate than economic growth again
reinforcing the inequality surrounding us. Overall, economic growth is not always beneficial for an economy
however the benefits of it are not to be disregarded as economic growth allows for an economy to be
competitive and achieve growth in all areas.
, "Evaluate the likely consequences of an economy achieving full employment." 25 marks
25/25 achieved
Full employment occurs when the number of job vacancies equals the number of people actively seeking
work but also when all the factors of production are fully being utilised in an economy, there’s no output
gap or demand deficient unemployment. In this essay, I will explore how achieving full employment can
improve living standards and lead to economic growth but also looking at the costs associated with
achieving this and the affect upon the macroeconomic objectives.
Full employment can be extremely beneficial for an economy as it enables people to improve their living
standards. Long term full employment provides the opportunity for people to escape poverty and increase
social mobility. People In employment earn factor incomes which enable them to improve their wellbeing as
they are able to increase consumption; this has a positive impact upon aggregate demand shifting it to the
right. Additionally, with more people being employed in an economy, overall incomes rise therefore
increasing consumption, stimulating AD and material and non- material standard of livings will increase.
The multiplier effect that this increase in consumer spending generates can materialise an even greater
increase in growth and national income. Greater incomes allow people to educate themselves further, grow
their skillset, consume more, have greater access to healthcare, thus aiding in improving their living
standards further. Since 1990-2010, Chinas production doubled and this resulted in 600 million people lifted
out of absolute poverty; social mobility had increased for many. China’s situation depicts how
advantageous full employment can be for an economy as it demonstrates the improved living standards
and material wellbeing they were able to experience.
Conversely, many people in work are often on low wages and experiencing work poverty for prolonged
periods of time which therefore doesn’t allow them to escape relative poverty despite there being a
minimum wage being in place. Workers potential aren’t maximised in an economy as we have underutilised
skills and resources due to part time and zero hour contracts; these contracts don’t provide security which
reduces their living standards and ability to gain full time employment. The level of unemployment can be
misleading in an economy as it doesn’t account for those underemployed workers who can’t find a job
suitable for their qualifications; their skills aren’t fully maximised to enable firms to produce more output
therefore reducing productive efficiency. Even though people may be in employment, the claimant count
and labour force survey figures don’t take into consideration declining median real wages, those who are in
work poverty and continuing to rely on benefits or even the hidden unemployed. The underestimation of
unemployment can bring costs, social and monetary, to the economy. The social costs of unemployment
can be extremely severe , with lower levels of income this will lead to a decline in living standards and
material wellbeing. Additionally, the loss of human capital can be extremely detrimental and can lead to
hysteresis. Real GDP declines for the economy resulting in the negative multiplier effect thus reducing
confidence. Full employment isn’t necessarily going to lead to rapid rising living standards for everyone. For
instance those who are poor, economically inactive or underemployed are likely to see little improvements
in their living standards and absolute poverty may remain or increase. Absolute poverty is a condition
where household income is below a necessary level to maintain basic living standards. In china, there are
huge regional disparities which convey the increase in relative poverty depicting how full employment isn’t
always beneficial.
Furthermore, achieving full employment within an economy will result in lower levels of unemployment
therefore filling up jobs and increasing the size of the labour force, thus increasing the productive potential.
economy. To what extent do you agree with this
statement?'25 marks 25/25 achieved
Economic growth measures the rate of change in a country’s output, it’s an expansion of the productive
potential of an economy, an increase in Real GDP. Growth comes from an expansion of both the quantity
and quality of factor inputs reflected in higher productivity and the growth enhancing effects of innovation.
Economic growth can be very advantageous for an economy as it results in low unemployment, increased
fiscal dividend, higher profits and investment thus enabling growth to persist over time. In this essay, I will
explore the benefits and costs of economic growth and explore whether economic growth is ‘always’
beneficial to an economy.
Economic growth can be extremely beneficial for an economy as this can result in a fall in unemployment.
Since labour is a derived demand and demand for goods and services are increasing, firms are going to
require more workers in order to produce extra output; this reduces unemployment in an economy thus
lowering absolute poverty. Furthermore, as there are more people employed in an economy, factor incomes
will rise therefore increasing consumption, stimulating AD and material and non- material standards of
livings increase. The multiplier effect that this increase in consumer spending generates can materialise an
even greater increase in growth and income. Economic growth can also be extremely beneficial due to the
fiscal dividend it provides for the government. With greater levels of economic growth, tax revenues from
income tax, corporation tax, VAT will rise. Greater levels of tax revenue will result in the government
having more money to spend on public services in the economy such as education and healthcare. With
money being invested into these vital services, this will improve the inputs and result in long run economic
growth. With the government spending on education this will improve the skills and therefore productivity
of the labour force, improving human capital. Additionally, this reduces structural unemployment as people
will have the skills to fill job vacancies in the economy thus increasing the quality of labour and thus long
run aggregate supply. Moreover, economic growth allows absolute poverty to be reduced; households are
able to educate themselves, consumer more, have greater access to healthcare thus aiding in improve their
living standards. Since 1990-2010, China’s production doubled and this resulted in 600 million people lifted
out of absolute poverty; their access to sanitation, clean water was much greater than before and social
mobility had increased for many. China’s situation depicts how beneficial and advantageous economic
growth can be for an economy as it highlights the improved living standards and material wellbeing they
experienced. Overall, this enables economic growth to persist over time and enables people to feel the
positive, favourable effects of this on themselves.
On the contrary, rapid increases in national income can result in an increase in relative poverty and income
inequality. With rapid, unsustainable increases in growth it is likely that only one group, the wealthy,
experience the benefits of economic growth therefore resulting in greater inequality amongst those who
are poorer. The rich tend to see greater benefits as they own assets and have high paying jobs in contrast to
the poor who don’t have these; this is why economic growth isn’t always beneficial. Furthermore, corrupt
governments may prevent the effective redistribution of income from higher levels of GDP and increases in
tax revenue promoting income inequality in society. Consequently, the poor may see no or little
improvements in their living standards and absolute poverty may remain or increase. In China, there are
huge regional disparities; the Gini coefficient measures income inequality and in China this figure was 0.3 in
,1980 and then 0.52 in 2015. These figures depict an increase in relative poverty which can result in issues
such as geographical immobility of labour and also regressive impacts on the poor. In 2008 (UK) the top 1%
income earners contributed to 50% of GDP growth thus capturing an in equal distribution of income
consequently reinforcing the fact that GDP growth and economic growth doesn’t truly encapsulate living
standards within a country. Additionally, this highlights that there needs to be other measures such as
composite indicators like the HDI which should be used alongside Real GDP in order to see whether
increases in economic growth actually translate into higher living standards.
Moreover, economic growth is likely to result in increased profitability for firms. With more demand and
higher household disposable incomes, firms can sell more goods and services thus resulting in increasing
revenues and profits. Consequently, firms with have higher retained profits to finance investment increasing
both short run and long run economic growth through the accelerator process thus enabling growth to
persist over time. The accelerator effect occurs when an increase in national income (GDP) results in a
proportionately larger rise in capital investment spending, there’s often surge in capital spending by
businesses when an economy is growing quite strongly and experiencing economic growth .In addition,
economic growth enables firms to invest and diversify their services into green technology, infrastructure,
new industries etc. which enables firms increase their competitiveness. Investment into capital spending
and technology will increase aggregate demand, shifting it to the right, if there is spare capacity within an
economy, then increased investment and a rise in AD will increase the rate of economic growth.
Furthermore, investment will shift LRAS to the right and if investment results in an increase in productivity
this may also lead to an increase in the long run trend rate of economic growth.
Conversely, unsustainable rises in economic growth can result in inflationary pressures as growth is
unsustainable and is higher than the long run trend. Unrestrained economic growth will accelerate demand
pull inflation, this is because if aggregate demand is increasing faster than aggregate supply there are
excessive pressures on existing factors of production therefore increasing the price of them, as shown in my
analysis diagram below with P1 increasing to P2, thus resulting in higher prices throughout the economy.
High inflation brings about a number of costs associated with it such as a loss of international
competitiveness thus deterring people purchasing a country’s exports, a fall in purchasing power, erosion of
saving, fiscal drag and these all can be detrimental to individuals, firms and the government. Additionally,
future generations should be able to benefit from and experience the same economic growth as the current
generation. This involves growth without inflationary pressures, costs to the environment and growth with
the risk of resource depletion. In order to reduce these effects and the risk of inflation conflicts, there should
be persistent increases in LRAS through supply side policies.
,Is summation, although economic growth positively impacts an economy, it is not always beneficial.
Economic growth can be vital to an economy as the benefits are widespread and enable growth to persist
over time; it leads to lower unemployment, increased fiscal dividend for the government, higher investment
from firms and in public services and helps to reduce inequality. All these benefits are substantially
significant to an economy as it results in higher living standards and material wellbeing. However, the
benefits of economic growth depend upon whether growth in sustainable, inclusive and sustained.
Economic growth at unsustainable levels can result in inflationary pressures, depletion of resources and so
in this sense if economic growth for the current generation comes at the expense of the future generation
then it’s not beneficial. Taking into consideration the negative and regressive effects of income inequality as
a result of economic growth, this elucidates how it isn’t always beneficial for an economy as it decreases
living standards and means the rich benefit at the expense of the poor. Economic growth is crucial, valuable
and beneficial for an economy however the drawbacks should try to be minimised and it’s imperative that
everyone benefits and economic growth is at sustainable levels. The most important factor is that all groups
within society benefit and feel the positive effect of economic growth not just one as this is crucial in
reducing the inequality within economies. Thomas Piketty observed that without sufficient policies of
redistribution, the wealthy tend to increase their wealth at a faster rate than economic growth again
reinforcing the inequality surrounding us. Overall, economic growth is not always beneficial for an economy
however the benefits of it are not to be disregarded as economic growth allows for an economy to be
competitive and achieve growth in all areas.
, "Evaluate the likely consequences of an economy achieving full employment." 25 marks
25/25 achieved
Full employment occurs when the number of job vacancies equals the number of people actively seeking
work but also when all the factors of production are fully being utilised in an economy, there’s no output
gap or demand deficient unemployment. In this essay, I will explore how achieving full employment can
improve living standards and lead to economic growth but also looking at the costs associated with
achieving this and the affect upon the macroeconomic objectives.
Full employment can be extremely beneficial for an economy as it enables people to improve their living
standards. Long term full employment provides the opportunity for people to escape poverty and increase
social mobility. People In employment earn factor incomes which enable them to improve their wellbeing as
they are able to increase consumption; this has a positive impact upon aggregate demand shifting it to the
right. Additionally, with more people being employed in an economy, overall incomes rise therefore
increasing consumption, stimulating AD and material and non- material standard of livings will increase.
The multiplier effect that this increase in consumer spending generates can materialise an even greater
increase in growth and national income. Greater incomes allow people to educate themselves further, grow
their skillset, consume more, have greater access to healthcare, thus aiding in improving their living
standards further. Since 1990-2010, Chinas production doubled and this resulted in 600 million people lifted
out of absolute poverty; social mobility had increased for many. China’s situation depicts how
advantageous full employment can be for an economy as it demonstrates the improved living standards
and material wellbeing they were able to experience.
Conversely, many people in work are often on low wages and experiencing work poverty for prolonged
periods of time which therefore doesn’t allow them to escape relative poverty despite there being a
minimum wage being in place. Workers potential aren’t maximised in an economy as we have underutilised
skills and resources due to part time and zero hour contracts; these contracts don’t provide security which
reduces their living standards and ability to gain full time employment. The level of unemployment can be
misleading in an economy as it doesn’t account for those underemployed workers who can’t find a job
suitable for their qualifications; their skills aren’t fully maximised to enable firms to produce more output
therefore reducing productive efficiency. Even though people may be in employment, the claimant count
and labour force survey figures don’t take into consideration declining median real wages, those who are in
work poverty and continuing to rely on benefits or even the hidden unemployed. The underestimation of
unemployment can bring costs, social and monetary, to the economy. The social costs of unemployment
can be extremely severe , with lower levels of income this will lead to a decline in living standards and
material wellbeing. Additionally, the loss of human capital can be extremely detrimental and can lead to
hysteresis. Real GDP declines for the economy resulting in the negative multiplier effect thus reducing
confidence. Full employment isn’t necessarily going to lead to rapid rising living standards for everyone. For
instance those who are poor, economically inactive or underemployed are likely to see little improvements
in their living standards and absolute poverty may remain or increase. Absolute poverty is a condition
where household income is below a necessary level to maintain basic living standards. In china, there are
huge regional disparities which convey the increase in relative poverty depicting how full employment isn’t
always beneficial.
Furthermore, achieving full employment within an economy will result in lower levels of unemployment
therefore filling up jobs and increasing the size of the labour force, thus increasing the productive potential.
