Economic Growth

Costs and Benefits of Economic Growth

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Carys Brown


  • Increases Real Income and Material Welfare 

Material Welfare is defined as a person’s material support in regards to housing, clothing, food and the necessary possessions to both survive and live comfortably. Economic growth can increase a person’s living standards giving them a greater purchasing power and real income level in order to buy goods to satisfy their wants. 

  • Economic Opportunities 

As economic growth leads to a greater demand for goods and services as well as the factors of production used to produce them. For this reason, demand for labour and investment will also rise giving people a greater opportunity to participate in the economy.

  •  Government Tax Revenue 

Due to the increased levels of goods and services produced, government collects a higher level of goods and services tax (GST) also as a result of the increased output. This benefits society as it gives government more revenue to spend on society projects such as infrastructure, businesses, jobs or education. 

  • Quality of Goods and Services

 Due to the higher demand for goods and services, a greater level of investment is required in order to increase output levels. This promotes ingenuity, skills, training, more effective machinery, productivity and, in turn, a higher quality of goods.

  • Materialism 

With a higher level of income and material welfare, consumers ability to purchase more goods brings the risk of materialism. This means that society can base their wellbeing on their processions or job status as opposed to general happiness. 

  • Externalities 

Economic Growth may also have serious environmental consequences due to the increasingly large demand. For this reason, there is little consideration for climate change or pollution which can be harmful for health of society. 

  • Inflation

 If economic growth expands drastically it can cause inflation to rise unsustainably. This results in full capacity, which strains the levels of resources even though they are fully employed, this is known as inflationary pressure. Therefore, although high inflation can cause large levels of growth, it doesn’t improve the standard of living of society if incomes don’t increase at the same time. 

  • Structural Unemployment 

Economic growth can result in fast changes in fields of production. This means that the structure of the economy can drastically shift and result in sudden job loss. A good example of this is situation in WA is the level of manufacturing jobs and skills lost as a result of Holden factories closing. This structural change in the market caused 600 people to lose their job. 

  • Unequal Distribution of Income

 The benefits of economic growth may not be shared across all levels of society, particularly if the upper-class see incomes rise drastically. This may lead to a stagnate in growth levels of middle and lower-class workers, having drastic effects on crime, life expectancy, pensioner support and social cohesion.

Topic Menu
Concept and Measurement of Economic Growth
Types of GDP
GDP Growth
Costs and Benefits of Economic Growth
Determinants of Economic Growth
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