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The Benefits and Costs of Economic Growth

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The Benefits and Costs of Economic Growth

Introduction

An increase in a country's output of products and services is a sign of economic growth.

Economic growth enhances people's living standards and makes it possible to support population

growth without seeing those levels decline. It also stands out for having lower unemployment

rates. It occurs when a nation's real gross domestic product (GDP) (per person) progressively

rises over time. Rapid economic growth increases business profitability and makes it possible to

make larger R&D investments. This might result in the development of technical innovations

like better healthcare and environmentally friendly technologies. As the economy continues to

grow, firms are encouraged to innovate and take calculated risks.

Define the sources of economic growth and give an example of each of the sources of

growth.

. Sources of economic growth include human capital, defined as the knowledge, skill sets,

and experience employees have in an economy. It is composed of an individual's education,

skills, and abilities. Another source is physical capital. It is described as every physical, artificial

item a business invests in and employs to make products. An example of this is tools, factories,

and equipment that are used in the production process (David, 2010). Thirdly, is research and

development. This is the outcome of inventions, a trained labor force, and research productivity.

Some of its examples include creativity, innovation, and invention. Finally is the rule of law. It

establishes how the government and its people use their authority under the law and adhere to the

legal consequences of breaking it. A good example of the rule of law in strengthening the
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economy is obeying the rule of law by government officials, providing sustainable livelihoods,

and eradicating poverty.

Propose one policy for each source of growth that could enhance or strengthen that

source.

Decrease the negative consequences of regulations; enhance the quantity and quality of

investments through deficit reduction, tax reform, and infrastructure spending; are

some measures which may strengthen the rule of law; as well as an increase public and private

R&D spending. Government representatives must uphold and apply the law consistently and

equitably (Twinoburyo & Odhiambo, 2018). Corruption and cronyism deter local and

international investment by raising the cost of capital. Firms, people, and international investors

must know that the law protects their property. Doing this allows foreign investors and

government officials to respect and uphold the law.

Increasing human capital in fields like research, education, and management is a policy

that would help improve human capital. As a consequence, creativity, social well-being, equality,

productivity, and participation rates will all rise, hence, supporting economic growth (Rice,

2021). As one of the most crucial aspects of the economy, investing in human capital and

implementing policies that support this source of economic growth is crucial. To ensure that

investments are paying off and adding value, nations can assess human capital in various ways.

The physical capital policy is strengthened by raising output capacity and reducing input.

The quality of the capital (capital stock) is just as important to production capacity as its amount

in determining prospective output. The technology aspect is also significant in this (Rice, 2021).

With additional technical breakthroughs, they may create the same amount of output faster or
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more with the same number of inputs. As a result, the economy will grow since more goods and

services will be exported.

The research and development sector may be strengthened as a source of economic

growth by a policy like increasing corporate and public investment in it. R&D expenditures

enable industrial output and productivity advances by increasing a company's knowledge base

(David, 2010). When knowledge spillovers occur, R&D investments also impact the financial

performance of other businesses not directly participating in the knowledge creation activity.

What are some of the downsides of economic growth? Give an example of a policy that

would help to reduce the negative impacts of growth.

Long-term financial development has a terrible impact on a country's citizens. As inflation

may rise, long-term economic trends may be associated with expansion. Inflations typically raise

the prices of goods on sale, making it more difficult for the nationality in question to meet their

demands (David, 2010). An economy can only expand for a finite period since it must boost its

GDP.

Economic expansion is not without drawbacks or critics. If income disparity is not

addressed, it will continue to expand, a danger to economic growth. For several factors,

economic inequality in the United States has been worse over the past 50 years. Numerous

factors are usually identified, including the decline in marginal tax rates, international

competition, and meritocracy (David, 2010). Since the 1980s, union membership has been

continuously declining, and as a result, employees' negotiating power over pay has decreased.

This reduction has occurred due to structural changes in the economy and the government's
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increased hostility against labor unions. Marginal tax rate reductions have also increased the gap

between wealthy and low-income earners.

The federal government can maintain a steady and expanding economy policy to lessen

the adverse consequences of economic expansion to sustain a robust economy. A crucial gauge

of economic expansion is the gross domestic product (GDP), which captures all monetary

production of goods and services. In a slow economy, GDP growth rates might be as low as 1%

yearly or as high as 4%. High unemployment, poor productivity, and few vacant posts are signs

of a slow economy. People regularly abandon their occupations or become unable to work for a

number of reasons, making absolute full employment hard to accomplish (Topalli et al., 2021).

Full employment is defined as a 4% or lower unemployment rate, or the share of the labor force

without a job. The unemployment rate shows state and regional disparities. When employment

remains at full employment, the negative impacts of economic expansion are mitigated.

Conclusion

In conclusion, I have learned that a country's economic growth is crucial. It is the best

method for reducing poverty and improving living conditions in impoverished countries.

National case studies and cross-country research both offer convincing evidence that rapid and

persistent development is required to achieve all of the Millennium Development Goals, not only

the first objective of reducing the number of people worldwide who live on less than $1 per day.

I have also learned that economic development opens up job opportunities, increasing the

demand for labor, which is occasionally the poor people main source of income. As a result,

more employment has been a key contributor to faster growth.

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Due to the rapid expansion of the world economy over the past ten years, the majority of

people who are of working age are currently employed. However, young unemployment is a

significant global concern (Sumberg et al., 2021). Young people throughout the world make up

25% of the labor force, yet 47% of them are unemployed, indicating higher than average

unemployment rates. Despite this, the global labor force has expanded by about 400 million

since the early 1990s. China and India are mostly responsible for this expansion, and expanding

economies are also substantially responsible for the production of new employment.

The poorest individuals have benefited since real wages for low-skilled employment have

increased in tandem with global GDP growth, demonstrating that global commerce and

wealth expand. There was no need to be concerned that rising levels of global integration and

"footloose" multinational investors would result in lowering wages. According to data on foreign

direct investment, firms are attracted to countries with higher labor standards rather than those

with lower ones. This kind of knowledge is crucial since it has improved my understanding of

how to support my nation's economy is expanding beyond where it is. It has also helped me

comprehend the significance of foreign investment in my nation.

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References

David, M. (2010). Economic Growth_ The Everything Economic. Economic growth,

(UNIVERSITY OF MARYLAND GLOBAL CAMPUS).

https://doi.org/https://www.ebsco.com/terms-of-use

Rice, R. E. (2021). Biodiversity Conservation, Economic Growth, and Sustainable Development.

Sumberg, J., Fox, L., Flynn, J., Mader, P., & Oosterom, M. (2021). Africa's "youth employment"

crisis is a "missing jobs" crisis. Development Policy Review, 39(4), 621–643.

Topalli, M., Papavangjeli, M., Ivanaj, S., & Ferra, B. (2021). The Impact of Foreign Direct

Investments on Poverty Reduction in the Western Balkans. Economics, 15(1), 129-149.

Twinoburyo, E. N., & Odhiambo, N. M. (2018). Monetary policy and economic growth: A

review of international literature. Journal of Central Banking Theory and Practice, 7(2),

123–137.