'What are the disadvantages of economic growth?'

Inflationary pressure: 

A side effect of economic growth is inflation, this is due to an increase in AD from AD1 to AD2 (diagram drawn) increasing price level from P1 to P2. Inflationary pressure increases the inflation level which may increase the difference between current price level and the inflation target of 2%. Not only will one of the macroeconomic objectives not be satisfied (inflation of roughly 2%) but prices will also rise domestically reducing utility of consumers and increasing imports as overseas prices are now cheaper relatively. However, if the price level is below 2% then inflation may be beneficial as it would move inflation closet to the 2% target (as is applicable right now with an inflation rate of roughly 2.8% as of March 2018).

Costs to the environment: 

Increasing levels of economic growth are derived from increasing levels of production from firms. As production and hence economic growth increase, the amount of pollution emitted into the atmosphere increases. This is a negative externality, a burden placed on a third party (in this case, the atmosphere and in turn all inhabitants of planet earth) by the production of goods and services. However, pollution levels can be controlled with the governemnt implementing pollution permits and raising awareness of the impacts of pollution on the environment.

Answered by Naim M. Economics tutor

9625 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Why does the supply or demand curve not shift when the price changes?


Buyers in the market for iPhones learn that the price of the Samsung Galaxy has increased. Explain how this would shift demand in the market for iPhones.


What is a Pigouvian Tax?


explain the effect of a rise in government expenditure in the AD-AS framework


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2024

Terms & Conditions|Privacy Policy