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Are there any minuses to economic growth?

Growth is typically considered great - improvement in GDP per capita, incomes and living standards. However, if asked in the exam, there is something for you to mention.

Firstly, consider nature of growth. If it is caused by an increase in aggregate supply, there may be unneccessary spare capacity. For example, imagine a firm that buys 20 new machines but only uses five and does not need the rest? Same can happen in the economy. There is growth of economic potential and increase in unemployed resources. Alternatively, growth caused by an increase in aggregate demand can be inflationary (use a digram to demonstrate),

Secondly, is the growth always good? What if the growth is caused by an increase in gun production?

Thirdly, how equitable and inclusive is growth? If only the richest people and the government get the biggest share of the increase in incomes, growth is no good for general population.

Lastly, do we become happier when we get richer? Easterlin paradox (you don't have to remember the name) shows that people are only happy with the rise in income in the short term; in the long term, they are unsatisfied again, because the new amount is not enough again. Also, Bhutan, for instance, promotes an increase in happiness and not GDP per capita as their national policy. The government thinks that as people grow richer, they become less moral and forget spiritual values.

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11 months ago

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