ECONOMICS ASSIGNMENT

LECTURER: Irfaan Khan BY Sayed Mahmud Sunny ID: 1008140890 IFC - 2

EXECUTIVE SUMMARY
The following assignment deals with economic growth and the cost of its pursuit in the long run. In the analysis the advantages and disadvantages of economic growth are clearly mentioned. The Objective and Justification shows how pursuit of economic growth can be a problem but yet we cannot stop economic growth. Ignoring the disadvantages we have to head for Economic Growth. Finally the conclusion summarizes the whole essay very briefly.

TABLE OF CONTENTS

 Introduction  Objective  Analysis

y Advantages of Economic Growth y Disadvantages of Economic Growth

 Justification  Conclusion  Bibliography

INTRODUCTION
Economic Growth is the positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is defined as economic growth including inflation, while real growth is nominal growth minus inflation. Economic growth is usually brought about by technological innovation and positive external forces. Economic growth can improve economic welfare:
y y y

More products are available to satisfy more wants & needs. Choice improves Higher employment means higher wages reducing poverty Bigger government tax receipts allow more government spending on e.g. health care

What is Sustainable Development? The term sustainable means 'enduring' or 'lasting'. Therefore, sustainable development is economic development that lasts. According to one of the environmental economists, the late David Pearce, sustainable development means that each generation should pass on at least as much "capital" as it inherits, the Pearce approach defines capital in broad terms, to include physical capital (machinery and infrastructure); intellectual capital (knowledge and technology) and also environmental capital (environmental quality and the stock of natural resources). The current Government supports the concept of sustainable development and focuses on four main objectives set out below:
y

Social progress which recognizes the needs of everyone: Everyone should share in the benefits of increased prosperity and a clean and safe environment. Needs must not be met by treating others, including future generations and people elsewhere in the world, unfairly. Effective protection of the environment: We must limit global environmental threats, such as climate change to protect human health and safety from hazards such as poor air quality and toxic chemicals and to protect things which people need or value, such as wildlife, landscapes and historic buildings. Prudent use of natural resources: We need to make sure that non-renewable resources are used efficiently and that alternatives are developed to replace them in due course. Renewable resources, such as water, should be used in ways that do not endanger the resource or cause serious damage or pollution. Maintenance of high and stable levels of economic growth and employment, so that everyone can share in high living standards and greater job opportunities.

OBJECTIVE

Economic Growth has a positive impact on a countrys economy. However, in the long run it has a number of opportunity cost. Opportunity costs like natural disasters, increasing pollution, inflations and so on. Apart from these disadvantages a country needs economic growth. Without growth a country will find it very difficult to be developed. If we have to pursuit growth we will have to bear the cost. We do agree with the fact that the pursuit of economic growth is not in peoples long term interest but in order to survive a country has to head for it.

ANALYSIS
The Advantages of Economic Growth

Improvements in living standards: Growth is an important avenue through which people can maintain better living standards and achieve lower rates of poverty. This is particularly true for countries who regard growth as a key route for poverty reduction among their population. According to a report published in August 2004 by the Asian Development Bank (ADB), rapid growth in many of the countries in the Asian region has reduced the number of people living on less than $1 a day fell to 22% of the region's population in 2002. That compares with 34% in 1990 and shows "considerable progress in the fight against poverty." Rising Employment: Growth stimulates higher employment. When a country is producing more, more labor is required and more wages are offered to people. Even the people who tend to live on unemployment benefits wants to get employed. Therefore a country enjoying economic growth will have a better employment rate. For example : the sustained growth in the British economy since 1993 has helped to bring about a large rise in total employment, the number of people in work has risen from 2.53 million at the start of 1993 to nearly 29 million thirteen years later. The graph here is a very impressive employment creation record, much better than most other countries in the European Union. Greater business confidence: Growth has a positive impact on company profits & business confidence. It helps the stock market and also works for the growth of small and large businesses. Potential environmental benefits: Richer countries have more resources available to invest in cleaner technologies. And, as nations move to later stages of development, energy intensity levels start to fall. Much depends on how many resources an economy is willing to devote to environmental improvement and protection. Over the last thirty years, the ratio of energy consumption per unit of GDP has fallen quite significantly. The reduction in energy intensity is a reflection of improvements in production technologies and also a gradual switch towards a low carbon economy. Much more progress needs to be made. Organizations such as the Carbon Trust sponsor research into low carbon technologies and many environmental groups believe that greater investment should be made in alternative sources of energy.

The Disadvantages of Economic Growth

Inflation risks: There is the danger of demand-pull and cost-push inflation if demand grows faster than long run productive potential. High and rising inflation can be destabilizing for an economy because it puts pressure on interest rates to rise and can cause a loss of competitiveness for domestic businesses in international markets. The environment: Economic growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities such as increased noise and air pollution and road congestion. Environmental damage can have a negative effect on our quality of life and limits our sustainable rate of growth. For example, road transport is responsible for 25% of UK CO2 emissions. Inequalities of income and wealth: Not all of the benefits of growth are evenly distributed. We can see a rise in real GDP but also growing income and wealth inequality in society which is reflected in an increase in relative poverty. The Gini coefficient is one way to measure the inequalities in the distribution of income and wealth in different countries. The higher the value for the Gini co-efficient (the maximum value is 1), then greater the inequality. Countries such as Japan, Denmark and Sweden typically have very low values for the Gini coefficients; whereas African and South American countries have an enormous gulf between the incomes of the richest and the poorest elements of the population. Regional disparities: Although average living standards may be rising, the gap between rich and poor can widen leading to an increase in relative poverty and a widening of the gap between different regions. China hit by rising air pollution Pollution problems have grown along with China's economy. Rising sulphur dioxide emissions in China are causing environmental harm and economic loss according to a new report from the Chinese government. China is already the world's largest sulphur dioxide polluter, emitting nearly 26m tons of the gas in 2005. This was a 27% increase since 2000 and coincided with a rise in coal consumption. The gas contributes to acid rain, which damages buildings, soil and crops, and can cause health problems in humans. Much of the pollution came from burning coal. Coal accounts for 70% of China's energy consumption. There is mounting concern over the environmental impact of China's rapidly expanding economy. In July, China announced it planned to spend 1.4 trillion Yuan ($175bn) over the next five years to improve water quality, and cut air and land pollution and soil erosion. In July 2006, the US Environmental Protection Agency estimated that on certain days nearly 25% of pollution in the skies above Los Angeles could be traced to China. (New York Times, August 2006)

JUSTIFICATION

As it was discussed above the pursuit of economic growth is not in peoples long term interest. If economy heads for growth more and more people will be employed increasing the national income resulting in a demand-pull inflation. People will have more buying. As a result market price will tend to increase and this goes on like a spiral. People will keep pushing money on economy and the price will keep on rising. However, halting economic growth is not an option. In order to survive in the economy a country has to promote growth and relatively employment. Otherwise the economy may enter recession and the country will suffer. In order to evade this problem a country will need to bear the cost and pursuit growth.

CONCLUSION

In this world nothing comes free of cost. In order to gain something we have to give up something. Considering growth we have seen there are a number of both advantages and disadvantages. Growth can help a country in a number of ways, like reducing unemployment; gain a better standard of living. It also helps to take an economy into boom. Disadvantages include problems like demand pull inflation, increasing pollutions and may even and up in a natural calamities. Even though the cost can be hard in the long run, but it is not possible to stop growth because this will create even a bigger problem in the economy at present. Therefore, in order to survive we should promote growth in our economy.

BIBLIOGRAPHY

Aghion, Philippe and Durlauf, Steven N. (2005). Handbook of Economic Growth. NorthHolland, Amsterdam.

Romer, David (2001). Advanced Macroeconomics, 2nd edition, McGraw-Hill, Boston, Mass.

Science Direct 15.04.09 http://www.sciencedirect.com/science/article/B6VDY-49WPNC31/2/0fc94f5cb02f49408027e2add05d8dd5

Tutor2u 15.04.09 http://tutor2u.net/economics/revision-notes/a2-macro-economic-growth-costsbenefits.html

Library of Economics and Liberty 15.04.09 http://www.econlib.org/library/Enc/EconomicGrowth.html