economy has enjoyed continuous growth of real national output since the late
autumn of 1992. Eight years of growth inevitably brings a range of economic
and social benefits - but there are also dangers and risks when an economy
rides a fast growth path.
economic growth stimulates higher employment since labour is a derived
demand. An increase in real GDP should cause an outward shift in the
aggregate demand for labour. Not all industries will share in the growth of
above tracks real GDP for the UK since 1955. There have been three main
economic recessions over the last thirty years (1974-75, 1980-81 and 1990-92)
but over the long run real output has increased on average by a little over
2% per year.
dividends from economic growth
a positive effect on Government finances - boosting tax revenues and helping
to reduce the budget deficit. More people in work, rising spending and higher
company profits all contribute to an increased flow of revenue to the
demand and output encourages further investment in new capital machinery via
the accelerator mechanism. This is known as income induced investment.
economic growth should have a positive impact on company profits &
improves living standards as measured by real GDP per capita although real
GDP on its own is an inadequate measure of the true standard of living and
quality of life.
OF ECONOMIC GROWTH
economy grows too quickly there is the danger of inflation as demand races
ahead of the ability of the economy to supply goods and services. Producer
then take advantage of this by raising prices for consumers.
can create negative externalities (increased pollution and congestion) which
damages overall social welfare
Not all of
the benefits of economic growth are evenly distributed. We can see a rise in
national output but also growing income and wealth inequality in society.
There will also be regional differences in the distribution of rising income