MAIN BENEFITS OF SUSTAINED ECONOMIC GROWTH

1. Increased Standard of Living: Economic growth often leads to higher per capita
incomes, which in turn can improve the standard of living for a nation's citizens
2. Job Creation: Economic growth can help reduce unemployment rates and provide
individuals with greater financial stability.
3. Reduced Poverty: Economic growth increases access to education, healthcare, and
necessities. Many fast-growing countries have made important progress in reducing
extreme poverty and improvements in human development outcomes. (HDI Index)
4. Increased Government Revenue: A growing economy generates higher tax revenues
that can then be used to fund better public services such as education & healthcare.
5. Investment Opportunities: Growth attracts domestic and foreign investment leading
to innovation, increased productive capacity (LRAS), and further job creation.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 MAIN BENEFITS OF SUSTAINED ECONOMIC GROWTH
Higher living standards – Rising real GNI per capita – helps to lift
many people out of extreme poverty and improve human
development outcomes

Employment effects – sustained growth created jobs and contributes

to lower unemployment which is turn helps to reduce inequality,
poverty and social problems

Fiscal dividend – higher economic growth raises tax revenues and

allowing the government to spend more on public and merit goods or
help cut a fiscal deficit

Accelerator effect - rising growth stimulates new investment such as

in low-carbon technologies and it provides profits that fund research
and innovation

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 MAIN COSTS OF SUSTAINED ECONOMIC GROWTH

1. Inflation: Rapid growth can lead to demand-pull and cost-push inflation. If aggregate
supply cannot keep up with demand, prices may rise, eroding real purchasing power
and potentially leading to economic instability.
2. Resource Depletion: Fast growth of GDP can lead to overexploitation of scarce
natural resources, such as water, minerals, and energy sources. This can have long-
term environmental consequences and compromise sustainability.
3. Income Inequality: Rapid growth doesn't always guarantee equitable distribution of
wealth. Benefits of growth may disproportionately accrue to certain segments of the
population, leading to increased inequality as measured by the Gini Coefficient.
4. Financial Instability: if rapid growth is fueled by excessive borrowing and speculative
investment, this can result in financial bubbles and subsequent crashes.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 MAIN COSTS OF RAPID ECONOMIC GROWTH
Risks of higher inflation and higher interest rates
• Can lead to demand-pull and cost-push inflation
• Central bank may decide to raise interest rates to control inflation
• Rising consumer spending might lead to an increasing trade deficit

Environmental effects
• Negative externalities such as pollution & waste
• Risk of unsustainable extraction of finite resources – causing a long-run depletion
of natural resources which makes growth unsustainable in the long run

Inequalities of income and wealth

• Rapid growth can lead to a higher level of inequality and social divisions, the
distribution of gains from growth are often unequal
• Many of the gains from growth may go to only a few people; growth might be at
the expense of more hours worked and increased stress

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 POSITIVE IMPACT ON CURRENT LIVING STANDARDS

Increased Income and Employment: Rapid economic growth often leads to

higher levels of employment and increased wages and income for individuals.
Improved Infrastructure and Services: Economic growth can provide
governments with more resources to invest in infrastructure such as roads,
bridges, public transportation, and utilities.
Technological Advancements: Rapid economic growth often promotes research
and development that can improve the quality of life through innovations in
healthcare, communication, transportation, and more.
Reduced Poverty: Growth can lift many families out of poverty by creating
opportunities for income generation and improving access to necessities.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 WHY GROWTH CAN THREATEN LIVING STANDARDS

Environmental Concerns: Rapid economic growth can lead to increased resource

consumption and pollution if not managed carefully. Balancing economic growth
with environmental sustainability is crucial for ensuring that future generations
have access to clean air, water, and natural resources.
Income Inequality: If not properly managed, rapid economic growth can
exacerbate income inequality. It's important to have policies in place that ensure
that the benefits of growth are fairly distributed across all segments of society.
Inflation: Rapid growth can lead to higher inflation and threatens real living
standards. The impact of high inflation often falls more heavily on families on
below-average income leading to an increase in relative poverty.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 ENVIRONMENTAL LIMITS TO ECONOMIC GROWTH

Resource Depletion: Growth often requires increased consumption of natural resources such as
minerals, fossil fuels, and forests. These resources are finite, and as they are extracted and used,
their availability diminishes.
Climate Change: The adverse effects of climate change, including extreme weather events, rising
sea levels, and disruptions to ecosystems, can limit growth potential and often hit poorer
countries that are less able to cope with the impact of climate-change related disasters.
Biodiversity Loss: Economic activities can lead to habitat destruction, pollution, and other factors
that contribute to the loss of biodiversity. Biodiversity is essential for ecosystem stability,
resilience, and the provision of ecosystem services that support human well-being.
Water Scarcity: As demand for water increases due to population growth and economic
activities, many regions are facing water scarcity. Industries, agriculture, and households all
compete for limited water resources, which can constrain economic growth and lead to conflicts.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 THE ENVIRONMENTAL KUZNETS CURVE

The Environmental Kuznets Curve (EKC) is a theoretical framework that

suggests a non-linear relationship between environmental degradation
and economic development. It's named after the economist Simon
Kuznets.
The Environmental Kuznets Curve posits that as a country's economy
grows, environmental degradation initially worsens, but after reaching a
certain level of economic development, environmental quality starts to
improve.
In other words, the relationship between environmental degradation and
income follows an inverted U-shaped curve.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 STAGES OF THE ENVIRONMENTAL KUZNETS CURVE

The Environmental Kuznets Curve (EKC) suggests a non-linear relationship

between environmental degradation and economic development. It's
named after the economist Simon Kuznets.
The Environmental Kuznets Curve posits that as a country's economy
grows, environmental degradation initially worsens, but after reaching a
certain level of economic development, environmental quality starts to
improve.
In other words, the relationship between environmental degradation and
income follows an inverted U-shaped curve.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 STAGES OF THE ENVIRONMENTAL KUZNETS CURVE

Low-Income Stage: In the early stages of economic development, countries tend

to focus on growth and industrialization. This often involves increased pollution,
and degradation of natural ecosystems - environmental quality deteriorates.
Middle-Income Stage: As economic growth continues, the negative impacts on
the environment tend to peak. At this point, environmental degradation may be
at its worst due to increased industrial activity, urbanization, and consumption.
High-Income Stage: Beyond a certain level of income, the theory suggests that
societies become more concerned about environmental issues. They start
investing in cleaner technologies, adopting stricter environmental regulations,
and promoting sustainable practices. Environmental quality begins to improve
despite ongoing economic growth.

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 THE ENVIRONMENTAL KUZNETS CURVE
Index of Pollution
(CO2 emissions per
$ of GDP)

E2

E1

Y1 Y2 Income per capita

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 MOVING UP THE KUZNETS CURVE

Rapid industrialisation – heavy industries are often energy intensive

Increasing emissions from urbanization

Relatively weak environmental laws & pollution regulations

Many low-income countries have limited technology/infrastructure

Heavy reliance on “dirtier fuels” such as coal

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 THE ENVIRONMENTAL KUZNETS CURVE
Index of Pollution E3
(CO2 emissions per
$ of GDP)

E2

E1

Y1 Y2 Y3 Income per capita

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 THE ENVIRONMENTAL KUZNETS CURVE
Index of Pollution E3
(CO2 emissions per
$ of GDP) E4

E2

E1

Y1 Y2 Y3 Y4 Income per capita

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 MOVING DOWN THE KUZNETS CURVE

Innovation leads to scaled application of cleaner production techniques

Tougher environmental laws - emissions zones, clean air acts / greater awareness

Government policy interventions such as carbon taxes and carbon trading

Change in structure of GDP away from heavy industry towards services

Emergence of policies / capabilities to promote smart urbanization

ECONOMIC GROWTH TUTOR2U.NET/ECONOMICS

 EVAL-U-WHEEL
You are about to see a line of argument that a
student has made as part of an answer to an essay
question.

The random ‘Eval-u-wheel’ will select a possible

line of evaluation for you to add to the response.

EQUALITY /
DEPENDS ON… ASSUMPTIONS PERSPECTIVES HOWEVER… EFFICIENCY
EQUITY
 EVAL-U-WHEEL
To what extent is economic growth always beneficial?
Economic growth should lead to higher living standards via an
increase in Real GNI per capita. In developing economies this will
help to lift people out of extreme poverty and improve
development outcomes (including a rising HDI)
?
EQUALITY /
EQUITY

Higher living standards may not be felt equally

throughout an economy and some regions,
particularly rural and agricultural areas, may
continue toWhat is the
suffer impact
from on equality/equity?
poverty.