Is economic growth good?

– suggests a rise in total output of a country, which means more economic activity is taking place in the economy.

since gdp is the total output or income, more output means more income for the citizens.

This leads to higher purchasing power and hence better standard of living.

This will lead to a rise in consumption and a rise in the aggregate demand. Given so, firms are likely to increase production and employ more workers, the economy experiences a rise in employment and a rise in GDP.

 

– governments are going to receive more tax revenue from income tax, which they can use to build infrastructure or give welfare benefits like free education and healthcare.

 

– with economic growth, more output is produced which requires more labor. this increases the efficiency in the economy as it is now operating closer to its maximum capacity.

 

 

Is economic growth bad?

 

– economic growth leads to inflation, which reduces the real value of money, it means that people’s purchasing power has decreased, since each dollar now buys less than what it used to be able to purchase

 

– economic growth comes with greater output and production, that means there is external cost like pollution to water and air. THis reduces the non material standard of living

 

– there is huge income inequality. Because the factor owners who own land and capital tend to get way greater increase in income. SO the rich get richer and poor gets poorer, governments have to spend more on welfare benefits and free provision of basic necessities. The income inequality could be measured by using the gini coefficient or lorenz curve.

 

What is inflation?

 

inflation refers to a sustained increase in the general price levels of a country over a given year.

Inflation could be calculated by consumer price index. it is an index that tracks the changes in the price of a basket of items that general households consume in an economy.

First, the government make a basket of items comprised on spendings that the general households make, this is usually on food, transport, housing for instance. Then, weights are assigned according importance or the proportion of total spending that this item makes up. For example, if household spends 50% of total spending on housing, then the weight assigned to housing is simply 50%. The weights are then calculated for all items to find a weighted average index.

Then, prices of individual items are listed down in year 1.

WIth this, it is possible to find the price of the basket of goods in year 1, the same is then done for year 2.

Finally, inflation rate is calculated by finding the rate of increment of this basket of goods from year 1 to year 2.