Sustainable Economic Growth
- A. Sustainable economic growth is defined as a steady rise in GDP (amongst other measurements) over a period of 12 months. Economic growth looks at rising standards of living… rise in employment, incomes and aggregate demand and supply.
If the economy experiences low economic growth or even negative economic growth then this will cause the economy to slow down. The economy always needs to grow and expand and without this expansion the economy won’t be able to ‘breathe’ and be ‘flexible’.
The economy will see a downturn, I mean as long as the economy stays above the 0% mark then the economy will keep going the same as the previous year but there will become a point when the Government may not be able to justify its spending in investment in the public sector. This refers again to ‘Gordon Brown’s Golden Rule’ where he says he will only spend and borrow the equivalent to predicted rates of growth but if the economy is slowing down and growth is either low or virtually none then he won’t be able to spend and the money that he has borrowed from previous years which has been justified by sustainable growth rates of future years will no longer be justified. This means he will either have to increase taxes to pay back what has been borrowed or look at decreasing its spending in the economy.
If either of these options are undertaken this will create a downturn in the economy. As people have less disposable income by increased income tax people will spend less/demand less. This has an effect on businesses as they receive less sales revenue they may have to cut costs by making workers redundant. As well as this businesses are less likely to invest. Again if there’s high unemployment then this means standards of livings may decrease as people have less money. The worst thing is this could drive the economy into a recession which could lead to negative growth in the economy. Tax revenue will also decrease due to not as many people working and businesses not making as much and plus the government has to put up with the increasing amount of people on the claimant count as they can’t find work.
