Growth raises incomes, jobs and tax revenue, but can harm the environment and widen inequality.
Advantages: higher output means higher incomes, so people can buy more goods and services and living standards rise. Firms sell more and hire more workers, so unemployment falls.
Governments collect more tax without raising tax rates, so they can spend more on health and education. Growth can also reduce poverty.
Disadvantages: more production can mean more pollution, congestion and use of natural resources. Growth may not be shared fairly, so the gap between rich and poor can widen.
Fast growth can also cause inflation if demand rises faster than the economy's ability to produce. People may work longer hours and have less leisure time.
- Advantages
- Higher incomes and living standards, more jobs, more tax revenue, less poverty.
- Disadvantages
- Pollution, resource depletion, inequality, possible inflation.
Worked example: Weighing growth
A country's economy grows at 7% a year for a decade.
- Benefit: average incomes double in about ten years, and millions move out of poverty.
- Benefit: tax revenue funds new schools and hospitals.
- Cost: air pollution in cities worsens and forests are cut down.
- Cost: incomes in cities rise much faster than in rural areas.
Watch out for this
Economic growth always makes everyone better off.
Growth raises average income, but the gains may be unequal, and pollution or longer working hours can reduce quality of life.
Check your understanding
Which is a disadvantage of rapid economic growth?
- Pollution may increase as more is produced.
- Unemployment falls.
- Tax revenue rises.