Increasing economic growth benefits and costs

In the United Kingdom has an average growth rate of around 2.5% since 1945. Governments often try to increase the growth rate, since it will have several advantages.

Benefits of economic growth

1. First, a higher GDP means the economy produces more goods and services and allow consumers to consume more when the welfare of the people will then benefit related to consumption growth of the company.

2 At higher GDP collect more taxes to govt, this is because people pays more income tax and VAT. This is advantageous because the govt can use these increased revenues to reduce the level of public debt and / or give more money for public services and investments in the infrastructure of the country.

3. Higher economic growth leads to an increase in the demand for labor, because the companies produce more. Therefore, unemployment is falling, has several advantages such as lower govt spending on benefits and fewer social problems.

However> Economic growth has different costs.

1st If economic growth is not sustainable and higher than the long run trend rate inflation is likely.

2. Furthermore, this temporary boom in output is unlikely to continue and may be replaced by an economic downturn or a recession followed. So it can be very damaging to economic growth through sustainable increase. This boom and bust cycle happening in Britain in the late 1980s and early1990s.

3. Also an increase in economic growth could lead to a balance of payments problem. If growth is attributed by higher consumer spending, as in Britain, then there is an increase in imports. If it rises faster than exports, there is a deficit. But growth could be performed, for example, had growth in Japan in the 1960s and 70s

4. Environmental Costs. Higher economic growth is contributing to global warming. The Stern report makes clear, there is a verysignificant economic costs associated with Global Warming.

But if the growth by increasing the production capacity and increasing the long-term trend rate then inflation will not occur and growth will be sustainably increased. It is also possible that economic growth without serious environmental damage increased.