Answer to Question #295691 in Macroeconomics for Damion

Question

Economic growth can bring benefits for society in that people, on average, have more income, but it also brings with it more problems. Just as economic theory at the microeconomic level can identify the externalities of economic consumption and production, so it can be used to highlight the trade-off between the benefits and costs of economic growth itself.

Explain both the meaning of economic growth and why it is considered to be an important objective for government. Apply relevant economic analysis to evaluate why it is argued that relying on economic growth itself is not a useful way of measuring real progress in advancing the well-being of society.

Answer 1

Explain both the meaning of economic growth and why it is considered to be an important objective for government.

Economic growth, defined as a rise in people's real income, indicates that the proportion between their income and the prices of the products and services they can buy is rising: services and goods become far more affordable, and people become less impoverished.

why it is considered to be an important objective for government.

• It reduces government borrowing. Economic growth generates more tax income, reducing the need to spend money on benefits like unemployment compensation. As a result, economic growth aids in the reduction of government borrowing. Economic growth is also important in lowering debt-to-GDP ratios.
• Money can be spent on environmental protection. A society may dedicate more resources to encouraging recycling and the use of renewable resources as its economy grows.
• Development of the economy. Sustained economic growth is the most important component in supporting economic development.
• Reduction in absolute poverty. Economic progress has aided in the reduction of absolute poverty.
• Lowering of unemployment. Firms tend to hire more people when output and economic growth are strong, resulting in more jobs.
• Average wages are higher. Consumers may buy more products and services as a result of economic expansion, and their living standards improve. Growth in the economy over the twentieth century was a key influence in lowering absolute poverty levels and allowing for an increase in life expectancy.

Apply relevant economic analysis to evaluate why it is argued that relying on economic growth itself is not a useful way of measuring real progress in advancing the well-being of society.

Economic growth is necessary for a country's progress, but it cannot be the only one. To accomplish sustainable growth and economic development, political/people and administrative will are required to make structural, institutional, and technological reforms. Additional economic growth can be easily evaluated using a country's GDP, but GDP does not describe economic development because it does not offer information about an individual's living conditions or purchasing power. The Human Development Index is the most appropriate estimate of evaluating development since it considers literacy levels and life expectancy, both of which impact productivity and can contribute to economic growth.