Discuss the extent to which economic growth may benefit the economy

888 Words May 20th, 2014 4 Pages
Discuss the extent to which economic growth may benefit the economy. (18)

Economics growth is, it the short run an increase in real GDP and in the long run an increase in the productive capacity of an economy (the maximum output that the economy can produce). GDP stands for Gross Domestic Product which is the country’s production of goods and services valued at market price in a given time period. Real GDP is when these figures are corrected for inflation using a base year (The UK uses 2003 as its base year). It can be measured in three different ways; the output measure is the value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government. The
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It also involves the reduction of poverty. With more of the population having a larger disposable income they will be able to buy more luxury goods and may invest in their own property, either buying a larger one or making improvements to it. There are more goods and services available for the population to consume and enjoy and their purchasing of these goods benefits the economy too. For living standards to be maintained GDP must grow at the same rate as population.

Another desirable effect of economic growth is increased tax revenue, the government receives more money from tax payers with out having to increase tax rates. If people are earning more, the more money they will pay in tax, the more money companies make the more tax they must pay to the government. The more money the government gains in tax revenue the more they can do to improve the country, they can invest in transport and infrastructure, they can make improvements to health care and they may even need to employ more people further reducing unemployment.

Not all aspects of economic growth are positive, for example when an economy is at, or near its full capacity of productivity prices can be driven up causing inflation and the devaluing of their currency, where each unit of currency buys fewer goods and services that it previously could have. It can increase the…