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5.4 Is growth good? Name: Aspirational: Outstanding Learning Feedback & Improvement Literacy Grade Lit 1 Lit 2 Lit3 Attitude to Learning AtL 1 AtL 2 AtL3 Progress 1 Above 2 On track 3 Below Expect What you will learn in this unit… This topic looks at the concept of economic growth. It explains how the production of more goods and services by businesses allows the standard of living in a country to increase. Other ways of measuring living standards are also considered. As with most economic concepts, there are costs as well as benefits and the topic will also consider the costs to society as a whole of producing more goods and services. Problems such as pollution, traffic congestion, the use of non-renewable resources, such as oil and coal, and the problem of waste will be considered. The concept of ‘sustainability’ will be investigated, as well as what role businesses and the Government have in ensuring that the benefits of economic growth outweigh the costs What is growth? Does growth increase the standard of living? Can growth be bad? Can growth be sustainable? What can Government do? Some of the key questions we will be looking into are below What is growth? What is meant by economic growth? Why do small changes in economic growth actually amount to output measured in billions of pounds? How can we improve our economic growth rate? Should the Government spend more money on education or should we encourage firms to buy more machinery? Does growth increase the standard of living? What is the standard of living? Can living standards be measured purely in terms of the amount of goods and services we can purchase with our income? What other ways are there of measuring living standards? Can growth be bad? What are negative externalities? What are the costs of economic growth? What effects do negative externalities have on society and on future generations? Can growth be sustainable? What is meant by the term ‘sustainable growth’? Can economy grow in a sustainable way? What role do renewable resources play in allowing sustainable growth to occur? How can businesses become more socially responsible and take more responsibility for the effects their operations have on society? What can governments do?s How can the Government encourage sustainable economic growth? What role do taxes, subsidies and laws play in helping to protect the environment? What effects will these policies have on business? How do businesses grow? Key Terms: Gross domestic product (GDP) – the total value of output produced in an economy in a year. Economic growth – the percentage increase in GDP per year. (This can be negative) Output – the amount of goods and services produced in a period of time. Resources – the land, labour and machinery that are used to produce goods and services. Investment – spending on equipment and plant that helps contribute to production. Human capital investment – spending on training and education which allows workers to be able to produce more output in the future. Physical capital investment – spending on new assets such as factories or machinery which allows a firm to produce more output in the future. Case Study: In 2003 China was the sixth largest economy in the world. By 2007 it had become larger than the United Kingdom and became the world’s fourth largest economy. By 2025 it is forecasted to become the second largest and should finally topple the United States and become the largest global economy by 2050. China is rapidly becoming an economic super power and in the 4 years to 2008 it posted economic growth rates higher than 10%. In contrast the United Kingdom economy grew by between 1 and 3% per year during the same time period. This is because China is now starting to take advantage of the large amount of resources it has, namely its population of 1.4 billion people Referring to the above case study, discuss with your shoulder partner who you think is/will benefit the most from China’s growth __________________________________________________________ __________________________________________________________ __________________________________________________________ Calculating GDP Economic growth rates do not tell you how big an economy is, they just show you how fast it is expanding or shrinking. If GDP in Year 1 was £20,000 and Year 2 was £25,000 The GDP% would be a growth rate of = 25% (5000/20000 x 100) If GDP in Year 1 was £28,000 and Year 2 was £29,500 The GDP% would be a growth rate of = If GDP in Year 1 was £19,000 and Year 2 was £22,000 The GDP% would be a growth rate of = If GDP in Year 1 was £20,000 and Year 2 was £17,000 The GDP% would be a growth rate of = Complete the missing words from the below statement OUTPUT RESOURCES HUMAN CAPITAL INVESTMENT PHYSICAL CAPITAL PRODUCTIVITY Economic growth occurs when a country produces more goods and services or GDP in a year. To produce more ______ firms need to purchase more _________. When a firm spends money on improving either the number or quality of its resources this is known as __________. Firms can invest money in _____________, this involves improving the skills and training of workers so they can produce more output in a period of time. A firm could also invest in ________________ this involves purchasing new assets such as a factory or a machine. When a person or machine produces more in a period of time, this is known as increasing ____________. Key Terms: Grants – sums of money provided by the Government to encourage a particular project or activity. Infrastructure – road, rail and air links that allow people and output to move speedily around a country and which help trade. Output – the amount of goods and services produced in a period of time. Less economically developed countries (LEDCs) – these are countries that have a low gross domestic product and where the average standard of living is low. Below are several ways a Government can help in promoting economic growth. Give an explanation as to how each of the strategies can affect economic growth What can a Government do? Explanation Reduce taxes on profits Provide Grants Improve infrastructure TEST YOURSELF 1. Gross Domestic Product can best be defined as the total: Select one answer A) Amount of goods and services produced in an economy in a year B) Amount of spending made by families in an economy in a year C) Amount of spending on physical capital made in an economy in a year D) Value of goods and services produced in an economy in a year 2. The country with the highest economic growth rates will have the highest: Select one answer A) B) C) D) 3. Level of GDP Level of investment Increase in the value of output in a year Infrastructure spending in a year Firms are most likely to invest in human capital because: Select one answer: A) Demand for their product will increase B) Productivity will increase C) It will increase the country’s GDP D) It will increase the country’s economic growth Answers ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Does growth increase the standard of living? Key Terms: Standard of living – the amount of goods and services a person can buy with their income in a year GDP per capita – the value of output produced by a country in a year divided by the population of that country. Technical economies of scale – reductions in average costs of production due to the use of more advanced machinery Quality of life – an individual’s overall sense of well being. This can be measured by health and education as well as the amount of goods and services a person can buy. Infant mortality rates – the percentage of babies that do not survive past their fifth birthday. Income distribution – where there is a difference between different groups of people within a country. Life expectancy rates – the average age which people are expected to live from birth. Literacy rates –the percentage of adults who are able to read and write Case Study: In a small village in China, Weidi Zheng gets ready for another day at work. Despite China’s huge economic growth and increase in Gross Domestic Product over the last ten years, Mr Zheng’s standard of living has barely changed. He still lives in a house made from metal sheets, works hard in the fields for long hours and wakes in the morning to find frost and ice in his home during the cold winter months. The only benefit from China’s economic miracle that he can see is that he used to burn scrap wood he collected to keep warm, now his income has risen by enough that he can afford coal. Mr Zheng is not the only person in China’s 1.4 billion population to have hardly benefitted from the rise in incomes and GDP. In 2007 196 million Chinese people lived on less than $1.25 per day. In reference to the above case study, build a mind map which reflects your standard of living and what it means to you My standard of living Calculating GDP per capita An increase in the standard of living is often shown by looking at changes in the GDP per capita of a country over time. Complete the table below by calculating the countries GDP Country GDP per capita (USD) 47,893 Population 53,041 316.5 million 41,787 64.1 million 6,807 1.357 billion 505 94.1 million Calculated GDP 424,700 Luxembourg United States United Kingdom China Ethiopia From the above information, which country as the highest GDP per capita? ______________________________________________________________ ______________________________________________________________ Which country is the most productive? ______________________________________________________________ __________________________________________________________________ Researching Quality of life data Research the figures to complete the below table Country Infant Life expectancy Mortality rates rates (per 1000) Literacy rates United Kingdom United States China Ethiopia Compare this data to the previous table and describe your findings below ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ _____________________________________________________________________ _______________________________________________________________________ Answers ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ Can growth be bad? Key Terms: Non-renewable resources – resources which are limited in supply and will eventually run out, e.g. oil and coal Case Study: Galkino lives in the port of Aralsk, Kazakhstan. His father was a fisherman, just like his grandfather. However Galkino will not follow in his parents’ footsteps. The family’s fishing boat, like those of others in the Aral Sea, is rotting on the sea bed in Aralsk harbour. Not only are there no fish, but there is also no sea. Since the 1970’s the Aral Sea has been getting smaller, shrinking in size by almost two thirds. The sea once had a surface area larger than Wales, but since the 1960’s its size has fallen from 68,000 Km 2 to just 17,160 Km2 in 2004. The sea has now split into three lakes, leaving the port of Aralsk at least 30 Kms from the edge of the water. The Aral sea disaster lays claim to being one of the world’s biggest man-made environmental catastrophes. In the 1950’s the government decided that the land around the Aral Sea would be perfect for growing cotton and boost the GDP. The diversion of water from rivers led to the sea shrinking and the use of fertilizers led to the poisoning of fish. As the sea had shrank the climate began to change, rain fell less and winters became colder, making it hard to grow crops. Galkino is an example of a third party which has been affected by decisions taken over the Aral Sea. Economists call the costs and benefits of a decision on a third party externalities. Externalities can be positive or negative. Economic growth can create a number of important negative externalities Produce a flow chart showing the externalities from the decision to grow cotton. The decision to grow cotton In the table below complete the notes on how the negative externalities would affect a country Negative Externalities Congestion Non-renewable resources Waste Effect on the country Pollution TEST YOURSELF 1) Which of the following is a non-renewable resource? A) B) C) D) Petrol Wind Solar power Fish Select one answer 2) Growth is not always beneficial due to the existence of: A) B) C) D) Increased unemployment Lower levels of tax revenue Increased fixed costs Increased external costs Select one answer 3) By increasing output, a firm will increase negative externalities faced by society. This is because by producing more it: A) Incurs higher wage costs B) has higher raw material costs C) produces more waste D) could be left with too much supply Select one answer Answers _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ Can growth be sustainable? Key Terms: Sustainable economic growth (development) – an increase in GDP that minimises negative externalities faced by future generations. Renewable resources – resources that are not limited in supply and are naturally replaced in the environment. E.g. solar power and wind power. Corporate social responsibility – a measure of the impact that a business has on society and the environment as a result of its operations. Greenwash – where a business tries to give the impression that it is environmentally friendly when its claims may not be entirely true or justified. Ethical responsibility – where a business takes a moral standpoint and ensures that its behaviour does not impact stakeholder groups in a negative way, it tries to do the ‘right thing’. Environmentally friendly – where a business acts or produces products in a way that minimises damage to the environment Case Study: The remote island of Lewis in the Outer Hebrides is at the centre of a storm. Developers want to build Europe’s largest wind farm by erecting more than 230 windmills on peat moor land to the north west of the island. The company behind the scheme, Lewis Wind Power, expect the wind farm to generate enough electricity to power almost half a million homes. The scheme has the backing of the local council and local businesses since it is expected to create 400 jobs and around £6 million per year of benefits to the local community. Some environmental groups are also backing the proposal since generating more electricity from renewables would reduce the use of nonrenewable resources. It will also reduce the quantity of greenhouse gases in the atmosphere, reducing the speed of climate change. However, not everybody is in favour of the plans. Local farmers are worried about the loss of grazing land, whilst others are concerned about the impact the wind farms will have on the rare species of bird that nest on the island such as the Golden Eagle. Stakeholders: Make a list below of all the stakeholders involved in the above case study, include a brief explanation of their interest Make a list below of renewable and non-renewable energy sources Renewable energy sources Non-Renewable energy sources What can a business do to help make growth sustainable? Give a minimum of two example of how a business can be environmentally friendly and ethically responsible in order help make growth sustainable ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ______________________________________________________________ ________________________________________________________________ ________________________________________________________________ ____________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ TEST YOURSELF 1) Which of the following would be an example of a firm becoming more environmentally friendly? A) Deciding to reduce the amount of packaging on its products B) Making sure that costs are kept to a minimum C) Encouraging consumers to use more of their products D) Advertising the product to make people aware of how green the product is Select one answer 2) In order to become more socially responsible, firms should: A) Ensure that they do not create any negative externalities B) Consider the consumer to be the most important stakeholder C) Consider the local community to be the most important stakeholder D) Make sure they consider all stakeholders Select one answer 3) Using solar power is an example of sustainable economic growth because: A) Solar power will never run out B) Solar power creates minimal pollution C) Solar power generates electricity more cheaply D) Solar power will only work in countries where there are higher levels of sunlight Select one answer Answer ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ What can Government do? Key Terms: Taxation – a payment made to the Government by consumers or firms. It is usually based on spending or incomes. Internalising an externality – where an unconsidered external cost is turned into a considered private cost which is paid in money. Incentives – measures designed to encourage a person to act in a different way – a way which may be considered preferable or desirable Subsidy – a payment to businesses and other organisations from the government to encourage the production of certain products or to make them cheaper for the consumer. . Legislation – laws that are introduced by the Government. Bam – a law that makes the production of a product or other business activity illegal. Regulation – restrictions and rules placed on business activities, which may be monitored by an independent body or by the industries themselves Case Study: In 2010 the prospective owners of top of the range luxury cars will hit by a brand new tax. Labelled the ‘showroom tax’ by many, it is in fact an increase in the Vehicle Excise Duty (VED) or ‘road tax’ for the first year of the life of a brand new car. The new tax will start in 2010 and the top rate of £950 will only apply to those new cars with the biggest engines and the greatest fuel consumption. As a result, they tend to emit the most carbon dioxide from their exhaust, a gas which contributes to global warming and climate change. Cars that emit very little carbon dioxide per kilometre (less than 100g per km) are exempt from the tax and their owners pay nothing. However, even the smallest petrol powered car does not meet this standard, including the 0.7 litre petrol engine Smart Car. What do you believe are the reasons behind the Government introducing the ‘showroom tax’? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ Match the below tools to why the Government would use it Taxes Subsidies Legislation Regulation This refers to laws passed by the government. It can be used to ban or restrict the production of something considered ‘bad’. Those who break the law may risk fines, imprisonment and other sanctions. This refers to a set of rules that govern the way something is carried out Imposing this on a good or service raises its price. When price rises, demand falls. This can be used to reduce demand for products considered ‘bad’. These are a sum of money given to businesses and other organisations to help them reduce the cost of producing something considered ‘good’. This would be an incentive to produce more. TEST YOURSELF 1) Which of the followingis the best example of ‘regulation’? A) The Government making a payment to encourage the production of a good B) Firms deciding to increase prices C) The Government deciding to tax a good to discourage its use D) The Government introducing a law which limits the amount of pollution Select one answer 2) Which of the following will provide households with an incentive to reduce the amount of electricity they use? A) A subsidy for each household that uses electricity B) Greater regulation on firms that produce electricity C) A tax on the amount of electricity used by households D) Subsidies for firms that produce electricity from renewable sources Select one answer 3) Giving bus operators a subsidy will only be effective in reducing traffic congestion if: A) Demand for car travel is price insensitive B) Demand for bus travel is price sensitive C) Demand for bus travel is price insensitive D) There are no negative externalities involved Select one answer Answer ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ______________________________________________________