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Economic Growth (COSTS (Negative environmental impacts (Unsustainable…
Economic Growth
COSTS
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Structural Unemployment
Rapid EG achieved through an increase in spending on capital goods--> Firms replace the use of labour with capital, leading to more capital methods of production. The retrenched workers may not be able to operate the advanced machine as they lack the required knowledge and skills. Hence they are unable to join newly-emerging industries as a result of a mismatch of skills--> higher structural UnN
Inflation
Actual growth due to increase in AD along LRAS--> GPL increases as well--> If rise in GPL is sustained--> Inflation
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BENEFITS
Higher SOL
Material
With Actual growth, the real national income increases. Hence consumer's disposable income increases and their purchasing power increases allowing them to increase their quantity and quality of goods and services consumed, enjoying a higher material standard of living
Non-material
Actual Growth can also lead to higher non-material SOL. As real NY increases, governments are able to collect more revenue in the form of taxes. they can utilize this revenue to build merit and public goods such as more schools and hospitals. By building these infrastructure,the healthcare and education improves for the nation and there would be higher life expectancy and literacy rates. Therefore citizens enjoy a higher non-material SOL
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Redistribution of Income
As a result of lower unemployment, gov can collect more taxes to redistribute income from rich to poor. This is especially so for a progressive income tax system where as income increases, workers will progress to a higher income bracket, requiring them to a pay higher percentage of their income as taxes. The taxes collected are part of the targeted expenditure on the lower income groups such as welfare payments and healthcare subsidies.
Potential Growth
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Increase in RNY--> Higher savings--> More availability of loanable funds--> increase in SS of loanable funds--> assuming demand remains constant it lowers interest rate --> Firms have greater incentive to make a higher investment that increases AD and LRAS--> Potential Growth
More taxes--> greater ability to invest in enhancing the productive capacity of economy (SKILLSFUTURE)
Excessively High Growth
Causes
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Productive capacity (LRAS) not able to accommodate rising AD as all resources are nearing full utilisation.
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