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Effects and Impacts of Economic Growth

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Effects/Impacts of Economic Growth

* Living Standards:

o Increase In household's disposable income means that there is more spent consumption, which means that there is a higher level of material living standards.

* Employment:

o A key benefit of economic growth is the strong growth in employment

o As there are higher levels of economic growth in a country, there is a general increase in the level of aggregate demand.

o To match this higher level of aggregate demand, there is increased output, which usually requires more workers.

o In Australia between 1996 and 2007 there was fairly strong levels of economic growth which resulted in the creation of more than 1.5 million jobs

o Between 1997 and 2008:

o Economic growth also tends to change the nature of the jobs that are available. In economics with higher levels of economic growth, more highly paid and highly skilled jobs are created.

* Inflation:

o Elevated levels of economic growth can result in price increases and larger wage claims, which contributes to an upward pressure on inflation

o Aim of government policies is to control the growth so that inflation doesn't surge - 'sustainable rate of economic growth.

* Income Distribution:

o Generally, higher economic growth levels leads to an improvement in living standards, but this is not always the case.

o The benefits may be skewed towards a particular group in society such as shareholders or executives.

o For example in the 1990s the strong economic growth in the States tended to flow mainly to the highest income earners, while living standards of the bottom quarter of society barely improved.

o On the other hand, economist Xavier Sala-i-Martin argues that economic growth actually improves global inequality. While The World Bank argues that global poverty is largely due to economic growth. In wealthier developed nations there has been some improvement in the income inequality, indicated by studies of the gini coefficient

* Balance of Payments/External Stability :

o Most of the disposable income of consumers is spends on imported goods and services.

o This results in higher levels of domestic production which requires significant imported inputs.

the Import of these 'intermediate' goods rose from $47 billion in 2003/04 to $68 billion



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