Costs Of Economic Growth
· Despite the benefits of economic growth there are potential costs.
· These costs will be greater if the rate of economic growth is too fast
1. Inflation. If AD increases faster than AS then economic growth will be unsustainable. The output gap will narrow causing inflation to increase.
2. Boom and Bust Economic Cycles. If Economic growth is unsustainable then high inflationary growth may be followed by a recession. This occurred in the late 1980s and early 1990s.
· IN the 1980s there was an economic boom with growth over 5% a year. However this caused inflation to rise to over 10%. To reduce inflation the govt increased interest rates, this caused the economy to slow down and then enter into a recession.
· However if economic growth is at a sustainable rate this will not occur
3. Balance Of Payments Deficit.
Increased Economic growth causes an increase in spending on imports therefore causing a deficit
4. Environmental Costs.
Increased economic growth will lead to increased output and therefore increased pollution and congestion. This will cause health problems such as asthma and therefore will reduce the quality of life
5. Reduced Inequality.
Higher rates of economic growth have often resulted increased inequality, however this depends upon things such as tax rates and the nature of economic growth
See also: Does Economic Growth increase happiness ?
Essays and Revision Notes on Economic Growth
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