Top-Rated Free Essay
Preview

Causes and Effects of Economic Growth

Good Essays
1084 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Causes and Effects of Economic Growth
“Discuss the Causes and Effects of Economic Growth”

Economic Growth is where goods and services maximise in value over a period of time. This is measured by Real Gross Domestic Product (GDP) which is defined as “The total market value of all final goods and services produced in a country….equal to the total consumer, investment, and government spending, plus the value of exports minus the value of imports.”(www.Investorwords.com) In turn this is measured by the level of aggregate demand in the economy using the equation: AD = C + I + G + (X – M).

The diagram above indicates how real GDP grows over the years.

• The diagram above shows that in 2006 GDP grew by 0.7%, 2.7% higher than in 2005.
• Output in production grew by 0.1% where as manufacturing grew by 0.6%.
• Growth in the service sector declined to 0.8%, as it was previously 0.9%.
• Distribution sector also slowed to 0.2% as a cause of weaker growth in retailing and wholesaling.
• Government’s final consumption expenditure rose by 1.0% and is now 2.5% above its figure in 2005.
“A rise in the trade deficit in real terms acted as a drag on GDP in 2006.” (www.Statistics.gov.uk)

There are many advantages and disadvantages of economic growth. Improving living standards is one of the main advantages because as the economy is growing there are more jobs available, stimulating higher employment levels, therefore people have more money to invest into buying houses. Disadvantages are that as the economy is growing so fast there may be the possibility of inflation. There is also the worry that because people are earning more they have more money to spend on cars therefore there is pollution being emitted into the atmosphere.

Economic growth is normally measured over the long term and is an indicator of how an economy is growing. “Economic growth is caused by improvements in the quality and quantity of the factors of production that a country has available, i.e. land, labour, capital, and enterprise.” (www.Biz/ed.co.uk) Economic decline may occur if any of these factors in production fall.

There are many causes of economic growth which tend to focus on the supply side of the economy such as the economic resources available. These include, as mentioned above, Land, Labour, Capital, and Enterprise. In order to ensure that these factors of production don’t fall measures are taken in order to improve them, such as:
• Improving the Quantity and Quality of Land Resources: This is done by, investing in better equipment and technology, improving irrigation, fertilisers and pest-control.
• Improving the Quantity and Quality of Human Resources: This refers to an increase in Labour and population. As the population increases more young people are therefore entering the labour market which in turn can cause an increase on economic growth. As with the amount of labour there is also the quality of labour to think about when describing the causes of economic growth. This depends on the amount of education within certain countries. “Improving the skills of the work force is seen as being an important key to economic growth…. As more and more capital is used, labour has to be better trained in the skills to use them, such as servicing tractors and water pumps, running hotels and installing electricity.” (www.Biz/ed.co.uk)
• Improving the Quantity and Quality of Capital Resources: There are two main types of capital;
1. Directly Productive Capital: This is capital which is used for such things as, plant and equipment.
2. Indirectly Productive Capital: This is used for building work e.g. construction. “The process of acquiring capital is called investment, If production moves from being labour intensive to capital intensive, unemployment and poverty increases.” (www.Biz/ed.co.uk) Economic growth is effected by the level and quantity of investment in a country. An increase in capital goods is known as Capital Accumulation.
• The Quantity and Quality of Enterprise resources: This is mainly to do with organisations and company’s. In order for them to improve they must ensure that there is room in they’re company for innovation and new inventions. Employees therefore must be well educated, but many organisations offer training. Increasing education is known to increase the workforce of a company, which in turn increases there capital and productivity.
“Economic growth can be caused by massive growth in consumer spending. This is because if the government lowered interest rates to try and make people buy more and spend less. People will go out and borrow money to buy houses and cars, which they would normally not be able to afford. This results in massive economic growth.” (www.Tutor2u.net)
Unemployment is a huge factor in economic growth. The unemployment rate is the number of unemployed people divided by the total labour force which includes both employed and unemployed who are willing to work. Unemployment has an impact on society and the economy and “Some of the likely costs of unemployment for society include increased poverty, crime, political instability, mental health problems, and diminished issue in economics. A low rate of unemployment usually helps prevent mass poverty and violence.” (http://en.wikipedia.org/wiki/Unemployment#Impact_on_society_and_the_economy)
Unemployment leads to low GDP as opportunities of producing more goods and services are wasted. In 2006 the unemployment rate was 5.5% and the unemployment level stood at 1,677,000. (www.incomesdata.co.uk/statistics/statempl.htm) It has since then rose to 5.6%, according to the labor force survey (LFS) 28.99million people were in full time employment, this remains on of the highest figure ever. (www.hrmguide.co.uk/jobmarket/unemployment)

Overall GDP has a lot to do with economic growth, it is the cause of many cause and effects. It is also caused by many factors which include, land, labor, capital and enterprise. As stated above there are many advantages and disadvantage of economic growth which are all to do with the communities in which we live in. Economic decline may occur if these factors of production fall at any time. I believe that in order to keep the economy growing we all must work together to ensure that all needs of the economy are met.

BIBLIOGRAPHY
• www.wikipedia.co.uk
• www.tutor2u.co.uk
• www.theguardian.co.uk
• www.theshortrun.co.uk
• www.investorwords.co.uk
• www.statistics.gov.uk
• www.incomesdata.co.uk
• www.hrmguide.co.uk

Bibliography: • www.wikipedia.co.uk • www.tutor2u.co.uk • www.theguardian.co.uk • www.theshortrun.co.uk • www.investorwords.co.uk • www.statistics.gov.uk • www.incomesdata.co.uk • www.hrmguide.co.uk

You May Also Find These Documents Helpful

  • Good Essays

    Economics growth is, it the short run an increase in real GDP and in the long run an increase in the productive capacity of an economy (the maximum output that the economy can produce). GDP stands for Gross Domestic Product which is the country’s production of goods and services valued at market price in a given time period. Real GDP is when these figures are corrected for inflation using a base year (The UK uses 2003 as its base year). It can be measured in three different ways; the output measure is the value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government. The expenditure measure is the value of the goods and services purchased by households and by government, investment in machinery and buildings. It also includes the value of exports minus imports and finally the income method is the value of the income generated mostly in terms of profits and wages. Economic growth is often a result of low unemployment, which has an effect on the components of aggregate demand in that consumption will rise as when more people have a job, more people have more disposable income, savings and investment rise and with this productivity rises too. Long-term economic growth will arise from a continuous percentage increase in real GDP however it may not always be sustainable.…

    • 889 Words
    • 4 Pages
    Good Essays
  • Good Essays

    The GDP per capita is frequently used as a pointer as the average of living for individuals in a specific area, and economic growth means the increase in the average standard of living. Though, there are a few struggles in using the GDP per capita to calculate the general well being. For example: 1- GDP does not provide any information relevant to the sharing of income in a country. 2- GDP doesn’t consider the negative externalities from pollution resultant to financial growth. 3- GDP doesn’t consider the positivity that may happened from services such as learning and health. 4- GDP keeps out the worth of all the actions that take place outside of the market place.…

    • 799 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Economic growth refers to an increase in the real output of goods and services in the country. Its growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports. Its measurement is quantitative through the measure of GDP. Economic development implies changes in income, savings and investment along with progressive changes in socio-economic structure of country (institutional and technological changes). It relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population's quality of life. Its measurement is qualitative and is measured through HDI (Human Development Index), gender- related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc.…

    • 877 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Business Environment P5

    • 618 Words
    • 3 Pages

    Growth in the economy is when the economy is at a stable point where businesses are doing well when more goods are being produced and consumed, many jobs available, work available and opportunities to invest in companies, companies are doing well high purchasing power for business owners and suppliers, more goods and services sold and the value of goods may increase, and this has…

    • 618 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Government spending is a way of increasing aggregate demand, and if successful can help boost economic growth. Government spending tends to be directed at infrastructure and maintenance, as this not only creates jobs but creates a valuable asset.…

    • 1232 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Economic growth in our days is very important to all countries. It shows that country is getting stronger in economics, and increases welfare of people. Economic growth is defined as an increase in the quantity of countries produced goods and services during specific time period. In economics it is called gross domestic product (GDP). Of course all of those goods and services have to be bought by somebody. It can be exported to other countries and used by foreigners or it can be consumed in domestic market.…

    • 439 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Economic growth occurs when there is a sustained increase in a country’s productive capacity over time, which can be measured by Gross Domestic Product (GDP). An increase of economic activity, subject to an expansionary fiscal policy, involves increased economic growth, investment and business/consumer confidence. This stimulates aggregate demand. Aggregate demand determines how much firms will produce (output = GDP) and the quantity of resources firms require to produce goods and services (this will determine employment). If…

    • 782 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Economic growth is the overall growth in an economy. Gross National Product and Gross Domestic Product are the normal measures of economic growth. Because growth can come in many ways, GNP and GDP are not particularly good measures. More so, economic growth can occur from having more people in an economy. If economic growth occurs more slowly than the population growth, then there can be economic growth, but the average person is less well-off. As economic growth is measured as the annual percent change of National Income it has all the advantages and drawbacks of that level variable.…

    • 1365 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    When an economic growth occurs, there is a group of people who are taking advantage of it and another group of people who are having bad impacts from it. In other words we can say that the rich people gets richer and richer but the people who are getting a small amount of income are getting poorer and poorer. Economic growth is very advantageous for people who are doing businesses because, as the prices of goods and services rise, they have the opportunity to get high profits. But when it comes to the people who are employed, the rise in prices of goods and services will ultimately become a heavy burden for them and their families. So basically, economic growth creates a huge gap between the rich and the poor.…

    • 394 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Economic Growth does not take into account the size of the informal economy. The informal economy is also known as the black economy which is unrecorded economic activity. Development alleviates people from low standards of living into proper employment with suitable shelter. Economic Growth does not take into account the depletion of natural resources which might lead to pollution, congestion & disease. Development however is concerned with sustainability which means meeting the needs of the present without compromising future needs. These environmental effects are becoming more of a problem for Governments now that the pressure has increased on them due to Global warming.…

    • 534 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    Economic Growth

    • 1715 Words
    • 5 Pages

    In our fast-developing world where people are overwhelmed with all the insane progress we never stopped for moment to think rationally “whether it is good thing that we developed for the last decade more than for the last ten centuries?” But for now let’s put up this question for later. “The pursuit of high economic growth is considered desirable as it generates an increase in a nation’s wealth, income, employment and output” (Mahadea, 2008). No matter where you are coming from if your country gets to experience economic growth your family, your country will better off. As we are experiencing the growth we get to enjoy its harvest such as better health care, education, and social infrastructure. Economic freedom gives us more chances of having better life conditions that we pass on to the next generation. In society and among countries recently took place a question “is economic growth desirable” and “whether it has more positive or negative effects on society”. “What are the impacts of the economic growth on different social layers?” As I will be covering the questions I would like to emphasize the moral part of the economic freedom how it benefits people or it makes the whole situation worth.…

    • 1715 Words
    • 5 Pages
    Better Essays
  • Satisfactory Essays

    Environmental Science: Study of how the earth works, how we interact with the earth, and how to deal with environmental problems…

    • 767 Words
    • 4 Pages
    Satisfactory Essays
  • Powerful Essays

    There are a number of key drivers of economic growth. These include growth in the size of the labour force, growth in the quality of the labour (improved skills), technological progress and innovation causing productivity improvement, and an increase in the resources available. As all countries are at different stages of development, each factor will vary in importance for a country at a given period in time.…

    • 1020 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Governments aim to achieve economic growth as it has many advantages; including higher employment levels. As Aggregate demand increases, more factors of production, most notably labour are needed to produce goods and services for the economy. When this occurs on a large scale unemployed workers shift into employment. This is beneficial as governments provide less social security for the population, so they can spend money on public services. As a result of increased government spending, the quality of services such as education and health will improve, hence benefitting the standard of living and boosting aggregate supply.…

    • 439 Words
    • 2 Pages
    Good Essays
  • Good Essays

    GDP or Gross Domestic Product measures the value of production and the income earned from that production that occurs within a nation’s boundaries (Hill, 2007). The total GDP value of Australia currently represents a 2.45 percent of the world economy. From 1960 to 2012 the yearly average of the Australian GDP was 325.7 USD Billion, with a reported all time high of 1520.6 USD Billion in December of 2012 and record low of 18.6 USD Billion in December of 1960. The next table represents the GDP of the last 4 years as reported by the Australian government every year.…

    • 694 Words
    • 4 Pages
    Good Essays