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1、1ACE EconomicsLecture 6: Costs and benefits of Australias economic growth Trinity College Foundation StudiesVideoThe Road to sustainable growth in China 2 mended readingRichard Morris., Economics Down Under, VCE Economics, Units 1 and 2, 9th Edition, Jacaranda. Chapter 23Lecture Outline Look at the

2、costs and benefits of economic growth for the following issues:Jobs and employmentPersonal esInternational tradeInflationMaterial living standardsNon-material living standards4Costs and benefits of economic growthEconomic growth has helped to take society out of the caves and surround it with a vast

3、 array of material things.However, despite the great economic benefits of growing our economy, it has come at a cost, and not all members of our community have shared equally in the gains.Ideally every country wants to not only achieve economic growth but wants to achieve sustainable economic growth

4、. A country is said to achieve sustainable economic growth when the benefits of economic growth are at least equal to (if not) exceed the cost of economic growth.5Jobs and employmentStrong economic growth creates extra jobs, helping to keep unemployment rates at low levels. One of the Australian Gov

5、ernments aims is to achieve the goal of full employment. This desirable situation occurs when unemployment is low, at around 5 per cent of the labour force A growing economy has mixed effects on unemployment and jobs.6Jobs and employmentBenefitsOne benefit of strong economic growth of around 34 per

6、cent a year is that it helps to generate fuller employment. Economic growth means that firms usually need to employ more staff to lift production (e.g. unemployment fell to a 34-year monthly low of only 3.9 per cent in February 2008). By contrast, when there is a recession and the economy is shrinki

7、ng, cyclical unemployment soon rises and since the slowdown in late 2008, Australias unemployment rate has increased to 6.2% in August 2015.7Jobs and employmentCostsSome people criticise rapid economic growth because it can add to structural unemployment, especially in the short term. Structural une

8、mployment results from the increased emphasis by firms and governments on greater efficiency, cost cutting, businesses changing how they produce goods and services, lowering tariffs, increasing competition and introducing new equipment or technology (e.g. robots) that replace labour. 8Jobs and emplo

9、ymentThe rise in structural unemployment can be the consequence for particular occupations in some industries (e.g. Australias textiles, clothing, footwear and automotive industries during the 1990s and 2000s),In the long term, unemployment should be lower if there is greater efficiency in our use o

10、f resources.9Personal es e is the reward earned by those individuals who sell resources to the business sector. Most people aspire to have rising es. Although a growing economy brings obvious benefits to e earners, there are also some possible dangers.10Personal esBenefitsStrong economic growth usua

11、lly helps to raise personal es because firms need to buy extra labour resources from households to lift their production levels. However, higher average es per capita are especially likely when they result from greater efficiency in the use of resources This rise in real es, or increases in the purc

12、hasing power of families, means people can afford to buy more goods and services than previously. 11Personal esBenefitsA growing economy also lifts the e or revenue collected by the federal government from e and other types of tax. This money can then e available to help the needy through the paymen

13、t of welfare benefits (e.g. to the unemployed, families, sick, aged and veterans) and the provision of cheap or free community services provided by the government through the public sector (e.g. public health, education, transport and housing). Economic growth makes these types of assistance more af

14、fordable and raises access for the poor to basic goods and services.12Personal esCostsSome commentators believe that a common weakness, resulting from economic growth, is that the extra goods and services that have been produced by a growing economy will not be shared evenly. The rich tend to get ev

15、en richer, and few benefits trickle down to the poor.Certainly, there is compelling Australian evidence during the past 1020 years of growing inequality in the distribution of market e However, inequality is greatly reduced and the poor are now generally better off, materially, than some years ago i

16、n terms of their purchasing power and general living standards, because of:government redistribution of e using welfare benefits, progressive taxes (where the rich are taxed at higher marginal rates than the poor) and the provision of cheap or free government services (e.g. health, education) 13Inte

17、rnational tradeExternal or international trade involves Australia buying imports of goods and services from overseas, and selling our exports of goods and services abroad. Our export trade accounts for over 20 per cent of all production, e and jobs, so it is certainly very important for the economy.

18、 When the value of exports exceeds the value of imports, Australia has a trading surplus, but when imports exceed exports, there is a trading deficit.In addition to exports and imports, our international transactions involve the movement of money capital or investment both into and out of the countr

19、y. ing investment from overseas often helps to finance the expansion of Australian businesses and makes up for the lack of local savings and investment.14International tradeBenefitsEconomic growth can help strengthen Australias trading position. A growing economy is able to produce more goods and se

20、rvices for export. This helps to pay for imports and helps to make our trade balance more favourable.15International tradeBenefitsA growing economy provides attractive opportunities for foreigners who want to invest in local businesses and the share market. In turn, this helps to build up the econom

21、ys capacity to lift production.16International tradeCostsSometimes, strong economic growth can actually lead to a trade deficit by raising imports of equipment and materials used by firms, relative to exports. In addition, because of rising es, some households too have more money to spend on luxury

22、imports and overseas holidays. Furthermore, if inflation rises as a result of a rapidly growing economy, this can also weaken the trade balance by making local producers and exporters less competitive in their prices.17InflationInflation occurs when the prices of most goods and services are rising.

23、This is seen as very damaging for the economy and for many individuals. Indeed, the government tries to achieve the goal of low inflation where the general level of prices is rising slowly at an average of around 2 to 3 per cent a year.A growing economy can have different effects on Australias infla

24、tion rate.18InflationBenefitsIf economic growth is the result of better productivity or efficiency (i.e. making more output using fewer inputs of resources), then it is also possible to have low inflation.This is because greater efficiency helps to lower production costs for firms. With reduced cost

25、s and strong competition, rival businesses can lower their prices and still make good profits. Cost inflation should fall.19InflationCostsOne risk associated with a rapidly growing economy is that it can sometimes overheat because it is stretched beyond its productive capacity. This is especially th

26、e case if spending is growing too strongly. Here, general shortages of goods and services will drive up prices and cause demand inflation. Additionally, the strong demand for resources by firms can lead to rising costs (e.g. higher wages for workers, more expensive raw materials, dearer interest rat

27、es on credit used by firms for financing their expansion).Higher costs often force firms to lift prices to protect their profit margins. This also leads to cost inflation.20Material living standardsMaterial living standards depend on the volume and range of goods and services made available for each

28、 member of society. Often GDP per person (i.e. per capita GDP equals GDP divided by population size), average e per person, average consumption per head of population, the number of cars per household or the level of calories of food intake per person are used to indicate average material living sta

29、ndards. How might economic growth affect material living standards?21Material living standards22Material living standardsBenefitsWhen the economys production grows faster than its population, there will generally be more goods and services for each member of society to enjoy - average es and purchas

30、ing power rise. This should make society better off materially, assuming that having more possessions is better for us. In most years, Australias rate of economic growth was faster than the rise in population, so that real es rose in most years, however in 1990 -92 and 2008-09 the rate of economic g

31、rowth was negative and slower than the rise in population.Per capita GDP and es fell, suggesting that average material living standards probably declined.23Material living standardsCostsMost people in Australia already have access to reasonable food, shelter, clothing, education, health, recreation

32、and transport. Hence, we should inquire whether having more of these things will necessarily raise our economic wellbeing proportionately. Additionally, unless the extra goods and services produced by our growing economy are divided or shared equitably between individuals, economic growth may dispro

33、portionately benefit the rich, as has occurred in Australia.24Non-material living standardsOur non-material living standards are affected by the quality of our lives. Although this concept is hard to define, almost impossible to measure and varies from person to person, many feel that general happin

34、ess, low crime rates, respect for one another, family unity, a clean natural environment, access to natural beauty spots, a lack of congestion and overcrowding, a rich cultural heritage, economic and social freedom, democracy, good life expectancy, sufficient leisure time and strong job satisfaction

35、 are all of great relevance. Many of these aspects are influenced by economic growth through the creation of externalities (i.e. these are costs or benefits that arise in the course of economic activities such as production or consumption, for people outside the particular activity).25Non-material l

36、iving standardsCosts and negative externalitiesNegative externalities are the unwanted costs directly or indirectly associated with the production and consumption of a good or service. They are suffered or paid for by a third party who receives no compensation for the loss. Probably the main cost or

37、 disadvantage of economic growth is the destruction of environmental resources (forests, rivers, oceans, ecosystems, biodiversity, non-renewable resources and air quality). 26Non-material living standardsThen we have the greenhouse gas problem associated with carbon dioxide emissions and global warm

38、ing. It is possible that this pollution could have catastrophic effects on our climate and wellbeing. These types of catastrophes would result in adverse consequences for non-material living standards now and into the future. 27Non-material living standardsCosts and negative externalitiesWith growin

39、g concern about these costs, many commentators are now questioning whether past and current rates of economic growth are now sustainable.Economic growth is also associated with increased stress, family disintegration when both parents are working or stressed, increasingly long hours of work, reduced leisure time an