Economic Growth

2 Advantages of Economic Growth

• Increase in individual standards of living due to increased incomes from employment.

• Increase in tax revenue for the government as a result of higher levels of economic activity. This results in an increase in government spending on essential infrastructure and public services such as education and healthcare.

2 Disadvantages of economic growth

• An increase in wealth inequality due to the compound appreciation of assets such as stocks and shares for the wealthy, widening the gap between the rich and the poor.

• Environmental concerns: economic growth can result in changes such as burning more fossil fuels through manufacturing and transport, which can resultantly damage our environment.

• Overcrowding/congestion as workers flood into overpopulated urban areas.

1. How do you calculate GDP per capita?

2. How do you calculate growth in GDP?

1. GDP/Population

2. change in gdp/original gdp x 100

2 Disadvantages of poor economic growth/a recession

• a lack of economic activity results in lower revenues for firms, causing many firms to shut down.

• higher unemployment rates as firms are unable to afford hiring as many workers.

• a lack of tax revenue for governments means that less money is allocated towards essential public services such as healthcare or education, leaving the public with worser quality infrastructure and aid.

How can investment affect economic growth?

• Investment by firms in capital goods such as machinery, factories and technology can increase their productive capacity and productivity, allowing more goods/services to be produced.

• This increases an economy's total output (real GDP), contributing to economic growth.

• Investment in infrastructure, such as transport and communications, can also make businesses more efficient and encourage further private investment.

How can technological change affect economic growth?

• Technological advances can increase productivity, allowing workers and firms to produce more output using the same or fewer resources.

• For example, AI can automate repetitive tasks and assist workers, allowing firms to produce goods/services faster and at lower cost.

• Across an economy, higher productivity and productive capacity can increase real GDP and economic growth.

How can the size of the workforce affect economic growth?

• A larger workforce increases the amount of labour available for production, potentially allowing an economy to produce more goods and services.

• For example, China's very large working population helped provide abundant labour during its rapid industrialisation, supporting large-scale manufacturing and exports.

• However, workforce quality and productivity also matter; simply having more workers does not guarantee economic growth.

How can education and training affect economic growth?

• Education and training improve workers' skills and human capital, increasing labour productivity.

• More productive workers can produce more and/or higher-quality output per hour, reducing firms' unit costs and increasing productive capacity.

• Across the economy, this can increase real GDP and long-term economic growth.

How can availability of natural resources affect economic growth?

• The availability of natural resources, such as oil, gold or rhodium can be generationally significant to the state of a country. By selling or using the valuable natural resources they possess, areas with high levels of valuable natural resources can boost their workforce (e.g a discovery of oil could make transport costs much lower for a region) or earn valuable income through foreign trade in order to focus on improving infrastructure and ultimately increase the general standards of living for civilians.

• However, many would argue that a larger/more skilled workforce is ultimately a more significant determinant of economic growth than the possession of natural resources, since it provides a long-term security of a reliable workforce to maintain reliable levels of output and economic growth.

How can government policies affect economic growth?

• Governments can set policies or make decisions that incentivise/restrict certain forms of economic activity. For example, if governments were to decrease base rates, they would attract higher levels of borrowing from firms and individuals which would result in higher levels of economic activity and growth due to greater investment.

• Governments can dicate spending on public services in order to encourage growth. For example, by increasing spending on education, governments can ignite a more skilled workforce, resulting in higher quality output, greater productivity and more efficient output for firms to collectively increase the economic growth of an area/country.

Name 4 determinants of economic growth

• technology

• natural resources

• size of workforce

• skill of workforce (education and training)

• investment

• government policies