2.5.4

Question 1

The benefits of economic growth on consumers

Answer 1

• the average consumer income increases as more people are in employment and wages increase
• consumers feel more confident in the economy, which increases consumption and leads to higher living standards

Question 2

Costs of economic growth on consumers

Answer 2

• doesn’t benefit everyone equally
• those on low fixed incomes might feel worse off if there is high inflation and inequality could increase
• higher demand- pull inflation
• face more shoe leather costs, which means they have to spend more time and effort finding the best deal while prices are rising
• law of diminishing returns

Question 3

Costs of economic growth on firms

Answer 3

• firms could face more menu costs as a result of higher inflation
• have to keep changing their prices to meet inflation

Question 4

Benefits of economic growth on firms

Answer 4

• firms might make more profits which could increase investment
• driven by higher levels of business confidence
• higher level of investment could develop new technologies to improve productivity and lower average costs in the long run
• as firms grow, they can take advantages of the benefits of economies of scale
• more economic growth in export markets, firms might face more competition, which will make them more productive and efficient

Question 5

Costs of economic growth on the government

Answer 5

Governments might increase their spending on healthcare if the consumption of demerit goods increases

Question 6

Benefits of economic growth in governments

Answer 6

The gov budget might improve
Fewer people require welfare payments and more people will be paying tax

Question 7

Costs of economic growth on current and future living standards

Answer 7

• high levels of growth could lead to damage to the environment in the long run, due to increase negative externalities from the consumption and production of some goods and services

Question 8

Benefits of economic growth on current and future living standards

Answer 8

• as consumer income increases some people might show more concern about the environment
• economic growth could lead to the development of technology to produce goods and services more greenly
• higher average wages mean consumers can enjoy more goods and services if a higher quality
• public services improve since governments have higher tax revenues, so they can afford to spend on improving services
• increase life expectancy and education levels