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Why is economic growth desirable?

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Introduction

Economic Growth Why is economic growth desirable? A positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is defined as economic growth including inflation, while real growth is nominal growth minus inflation. Economic growth is usually brought about by technological innovation and positive external forces. The two main ways of measuring economic growth. The first way is GDP and the second GNI. GDP measures the output produced by factors of production located in the domestic country regardless of who owns these factors. GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. GNI per capita is gross national income divided by mid-year population. As GDP is a measure of living standards, we can say that as the economy grows, then GDP increases. If there is increased output our living standards will increase and because of this there will be more consumers demanding the goods and there will be an increase in supply of these goods. ...read more.

Middle

More people will also be in higher paid managerial jobs, therefore they will come into the higher tax bracket and income tax will increase. Adverse consequences of rapid economic growth. There is an inequality of income. Growth rarely delivers its benefits evenly. It often rewards the strong, but gives little to the economically weak. This will widen the income distribution in the economy. Pollution (and other negative externalities). The drive for increased output tends to put more and more pressure on the environment and the result will often be increased pollution. This may be water or air pollution, but growth also creates significantly increased noise pollution. Traffic growth and increased congestion are prime examples of this. Loss of non-renewable resources. The more we want to produce, the more resources we need to do that. The faster we use these resources, the less time they will last. Loss of land. Increased output puts further pressure on the available land. This may gradually erode the available countryside. Lifestyle changes. The push for growth has in many areas put a great deal of pressure on individuals. ...read more.

Conclusion

The workforce may increase due to immigration or a higher retirement age. A shift in aggregate demand The diagram below shows what is likely to happen. AS shifts outwards and a new macroeconomic equilibrium will be established. The price level has fallen and real national output (in equilibrium) has increased to Y2. A rise in aggregate demand is due to things such as increased government spending. If the government spends more in the economy this will almost certainly lead to an increase in aggregate demand. Higher real incomes will also do this because if peoples real incomes are higher, then they will feel as if they have money available to spend on consumer goods which increases the economies potential. Lower interest rates is also a componentl. If lower interest rates were introduced, then this may lead to increased expenditure because many people will feel confident and want to spend, not save, whilst they don't have to pay that much interest. They may wish to re morgage their house etc. Lower tax rates may also be a factor. ...read more.

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