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ThebenefitsofEconomicgrowth Consumers: • Higheraverageincomes.Thisenables consumerstoenjoymoregoodsand servicesandenjoybetterstandardsofliving astheyhavemoredisposableincome. • Improvedpublicservices.Withincreased taxrevenuesthegovernmentcanspend moreonpublicservices,suchastheNHS andeducationetc. Firms: • Economicgrowthencouragesinvestment andthereforeencouragesavirtuouscycleof economicgrowth. TheGovernment: • Lowergovernmentborrowing.Economic growthcreateshighertaxrevenuesand thereislessneedtospendmoneyon benefitssuchasunemploymentbenefit. Thereforeeconomicgrowthhelpstoreduce governmentborrowing. • Economicgrowthalsoplaysarolein reducingdebttoGDPratios. • Lowerunemployment:withhigheroutput andpositiveeconomicgrowthfirmstendto employmoreworkers Currentandfuturelivingstandards: • Moneycanbespentonprotectingthe environment.WithhigherrealGDPasociety candevotemoreresourcestopromoting recyclingandtheuseofrenewable resources ThecostsofEconomicgrowth Consumers: • Inequality:becausegrowthcanbenefitasmall sectionofsocietymorethanothers.Forexample, thosewithassetsandwealthwillseea proportionallybiggerriseinthemarketvalueof rentsandtheirwealth.Thoseunskilledwithout wealthmaybenefitmuchlessfromgrowth. Firms: • Inflation:Higherpriceswillincreasecostsof productionforfirms. TheGovernment: • Inflation.Itiswhendemandincreasestooquickly thatwegetapositiveoutputgapandfirmspush upprices.Highinflationarygrowthmaybe followedbyarecession. • Increasedeconomicgrowthtendstocausean increaseinspendingonimportscausingadeficit onthecurrentaccount. Currentandfuturelivingstandards: • Increasedeconomicgrowthwillleadtoincreased outputandthereforeincreasedpollutionand congestion.Thiswillcausehealthproblemssuch asasthmaandthereforewillreducethequalityof life. • Economicgrowthalsomeansgreateruseofraw materialsandcanspeedupdepletionofnonrenewableresources. ThelimitationsofusingGDPtocomparelivingstandardsbetweencountriesandovertime Simplybecauseacountryappearstoberichdoesnotactuallymeanthatitis,andthismeansthatusingnational incomefigureslikeGDPasameasureoflivingstandardsmaybeinappropriate.AnincreaseinrealGDPdenotesan increaseintheoutputofgoodsandservicesoftheeconomy,butnotalwaysariseinlivingstandards: GDPdoesn’tincludecertaineconomicactivitiessuchas: • Nonmarketactivities • Negativeexternalities • Undergroundeconomy • Qualityoflife Otherincomeandoutputmeasureinclude: GNP(GrossNationalProduct)–marketvalueofgoodsandservices NNP(NetNationalProduct)–totalmarketvalueofallfinalgoodsandservicesminusdepreciation GNI(GrossNationalIncome)–valueaddedbyallproducerswhoareresidentsplusproducttaxes(exceptsubsidies) notincludedinoutputplusincomereceivedfromabroad PI(PersonalIncome)–anindividual’stotalearningsfromwages,investment,enterprises DPI(DisposablePersonalIndex)–totalamountofmoneyavailableforanindividualorpopulation Needtolookatacountry’sdemographicstodeterminewhetheracountryhashighlivingstandardsornot,this includes: Accesstohealthcare,Infantmortality,Maternalmortality,Lifeexpectancy,Accesstosafewater,Agricultureasa percentageofGDP,Childmalnutrition,Environmentalmeasures,De-forestationrate,Expenditureonsocialsecurity, Foodaid,Householdswithelectricity,Transportinfrastructure,Povertyline,Accesstoeducation,Leisure UKnationalwellbeing Since1970,theUK'sGDPhasdoubled,butpeople'ssatisfactionwithlifehashardlychanged.81%ofBritons believethattheGovernmentshouldprioritisecreatingthegreatesthappiness,notthegreatestwealth.TheOffice forNationalStatisticsdataalsosuggestspeopleinWalesandEnglandarelesssatisfiedthanpeopleinScotland andNorthernIreland. Teenagersandthoseaboveretirementagearethehappiest.Thesurveyisanefforttoproduceanalternative measureofnationalperformancetoGrossDomesticProduct. Relationshipbetweenrealincomesandsubjectivehappiness/well-being IncomehasbeenmeasuredagainstSWB(SubjectiveWell-Being)inanumberofways,dependingonthelevelof comparison.GNPistypicallyusedforbetween/within-nationcomparisonsandforcomparisonsofcountries overtime,andpersonalincomeorwindfallsaretypicallyusedinstudiesofindividuals,throughbothself-report andmoreobjectivemeasurement. ApositivecorrelationbetweenincomeandSWBmakesintuitivesense.Higherincomewouldallowpeopleto morecomfortablymeettheirbasicphysicalneedsandwouldconferstatusadvantages.Beyondthis,thegreater freedomofactionandconsumptionthatincomeprovidescouldallowforgreaterself-actualisationandmore successfulgoalpursuits.Thisarticlewillreviewtheextantresearchontheincome-SWBrelationshipateachof theabovelevels,anddiscussthelimitationsandfuturedirectionsofthislineofinquiry. Peoplelivinginbuilt-uporformerindustrialareas,suchasSouthWales,theWestMidlandsorLondon,tendedto belesshappy,whileruralareas,suchasOrkneyandShetland,andRutland,intheEastMidlands,werethe happiest. Whenbrokendownbymaritalstatus,marriedpeoplewerethemostsatisfiedwiththeirlives,followedby cohabitees,thensinglepeople,widows/widowersandpeoplewhoweredivorced. Beinghealthywasalsoanimportantfactorbutdoesnotguaranteehappiness,thesurveysuggests,with18%of thosewhoreportedgoodorverygoodhealthreportinglowsatisfactionwithlifeoverall,while38%ofthose withbadhealthreportedhighormediumlevelsofsatisfactionwithlife. Some45%ofunemployedpeopleratedtheir"lifesatisfaction"asbelow7outof10.Amongemployedpeoplethe figurewas20%. Glossary EconomicGrowth:anincreaseintheamountofgoodsandservicesproducedperheadofthepopulationovera periodoftime. Consumers:apersonwhopurchasesgoodsandservicesforpersonaluse Firms:Afirmisabusinessorganizationthatsellsgoodsorservicestomakeaprofit. Livingstandards:Standardoflivingreferstothelevelofwealth,comfort,materialgoodsandnecessities availabletoacertainsocioeconomicclassinacertaingeographicarea 1. Inflation:ageneralincreaseinpricesandfallinthepurchasingvalueofmoney. 1. Investment:theactionorprocessofinvestingmoneyforprofit GDP:GDPrepresentsthemonetaryvalueofallgoodsandservicesproducedwithinanation'sgeographic bordersoveraspecifiedperiodoftime. Currentaccountdeficit:Ameasurementofacountry'stradeinwhichthevalueofgoodsandservicesitimports exceedsthevalueofgoodsandservicesitexports. Negativeexternalities:acostthatissufferedbyathirdpartyasaresultofaneconomictransaction Undergroundeconomy:Americantermforblackeconomy–illegalgoodsandservices,orunderthetable wages. 1. Qualityoflife:thestandardofhealth,comfort,andhappinessexperiencedbyanindividualorgroup. Subjectivewellbeing:Subjectivewell-being(SWB)referstohowpeopleexperiencethequalityoftheirlivesand includesbothemotionalreactionsandcognitivejudgments.Psychologistshavedefinedhappinessasa combinationoflifesatisfactionandtherelativefrequencyofpositiveandnegativeaffect. Discusstheextenttowhicheconomicgrowthmaybenefitaneconomy(18) Economicgrowthwillresultinanincreaseintheoutputofgoodsandservices,raisetaxrevenue,may lowerunemploymentandsoreducegovernmentspendingonunemploymentrelatedbenefits.Economic growthcanraiselivingstandardsbyproducingmoregoodsandservicesandincreasingemployment opportunities.Theremayalsobedisadvantagesofeconomicgrowthincludinganopportunitycostinthe shortrun,pollution,depletionofnon-renewableresourcesandstress.Theeffectsofeconomicgrowthwill beinfluencedbythetypeofextraproductsproduced.Forexample,ifmoreconsumergoodsandservices aremade,livingstandardswillrisenow.Ifmorecapitalgoodsaremade,itmaytakealittlewhilefor livingstandardstoincrease.Ifmoreweaponsaremade,peoplemaynotfeelbetteroff.Resourceswill havetobeshiftedfromproducingconsumergoodstoproducingcapitalgoods.Ifaneconomyis producingatfullcapacity,therewillbeanopportunitycostinvolvedinachievingeconomicgrowth. Anotherdisadvantagecouldbeifincomeisunevenlydistributed,onlyasmallproportionofthe populationmaybenefitforeconomicgrowth.Themoresustainableeconomicgrowthis,themore beneficialitislikelytobe.Avoidingdepletingnon-renewableresourcesandpollution,ismorelikelyto enableeconomicgrowthtocontinueforfuturegenerationsandthereforemakeitmoresustainable. Outcomewilldependonthenatureofeconomicgrowthi.e.whetheritisshortorlongrun.Economic growthresultingfromashiftoftheaggregatedemandcurvetotherightmaybeassociatedwithinflation whilstpotentialeconomicgrowthresultingfromashifttotherightoftheaggregatesupplycurvemay reduceinflationarypressure.EconomicgrowthcausedbyshiftsofboththeADandAScurveswilllastfor longerthaneconomicgrowthresultingfromjustashiftinonecurve.Aseconomicgrowthisa macroeconomicobjectiveformostgovernmentsthissuggestsmostcountriesregardeconomicgrowthas beneficial. Revisionexercise LimitationsofGDPisthatitdoesn’tincludecertaineconomicactivities,giveafewexamples Whatarebenefitsofeconomicgrowthforconsumers? Whatarecostsofeconomicgrowthforthegovernment? Whatisthecorrelationbetweenincomeandsubjectivewellbeing?
