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Why does a govt focus on economic growth as a primary objective and should it always pursue this objective. Give reasons for your answer.

1) Economic growth

Positive economic growth means the increase of production of goods and services in a country. More goods and services mean a better standard of living for the general population in the country. The government focuses on the welfare of the state. Therefore through economic growth and development the people of the country may prosper. Economic growth results in lower levels of unemployment and may also reduce inflationary pressures in the market if there is spare capacity on the production possibility frontier of a country. However it may sometimes conflict with the other two objectives of the govt that is stable balance of payments and inflation rate given the situation and circumstances of the economy. Economic growth can be achieved by either increasing aggregate demmand or aggregate supply given the other is constant. However if there is no spare capacity for increased production in the economy then a rise in aggregate demand will cause demand pull inflation aswell as cost push inflation (rise in prices of resources/inputs). By increasing aggregate supply and causing a shift of the AS curve outwards either by improved technology or better efficiency and management there wont be inflationary pressures, cetris paribus. Another conflict economic growth has is with a stable balance of payments in which both imports and exports are of equal value. Economic growth may increase imports because of increased demand for raw materials this may cause a deficit. A constant BOP surplus due to increased surplus is also undesirable as it may cause rise in exchange rate of the country thereby making the country's products more expensive for other countries so demand decreases and it may cause unemployment. Concerning unemployment however there may be a positive or negative impact depending on the methodology used to obtain economic growth. If industries have shifted to more capital intensive rather than labour intensive methods of production it means a rise in unemployment. However if more units of labour were hired to drive the postive economic growth then it means unemployment has been reduced. (I will not go into the details regarding the multiplier, accelerator, different govt methodology and schools of economic thought (keynesians and monetarists) as this is just a base intro) 

Bahram K. GCSE Economics tutor, A Level Maths tutor, GCSE Maths tutor

1 year ago

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