Consequences of EG

Consequences of EG

1. Positive

   • 1. Higher MSOL
     • ↑ Y per capita
       • ↑ Purchasing Power
         • ↑ Spending on normal gds
           • Fall in inventories
             • ↑ DD for FOPs
               • ↑ Derived DD for labour , ↑ employment
                 • ↑ MSOL
           • ↑ MSOL
       • Assuming pop growth > GDP growth
   • 2. Higher Tax Revenue for govt
     • Increased ability to spend on economy for future developments
       • E.g. Increased provision of merit goods such as healthcare
   • 3. Increased I (including FDIs)
     • EG signals rising purchasing power of citizens
       • Increased expected profitability of I
         • Fall in direct investments abroad
         • Increased FDI
           • Increased PG and AG
   • 2. Reduced Unemployment

2. Negative

   • 4. Worsening BOP
     • Increased purchasing power may lead to increased import expenditure
       • Worsens BOT under CA
       • e.g. Locals travel to foreign ctys for holidays more frequently , purchasing more foreign gds
   • 3. High Inflation
     • If economy operating near or at vertical range of AS
     • Erodes purchasing power
       • Undermines benefits of EG
   • 2. Exacerbates y-inequality
     • Increased y may be experienced predominantly by high-y earners
       • Increased unhappiness among citizens
         • Consequences may be severe
     • Majority doesn't experience ↑ MSOL
   • 1. Non MSOL may be compromised
     • E.g. growth leading to increased air pollution --> worsens air quality

3. Outcome depends on...

   • 1. State of economy
     • Determines whether growth is inflationary
   • 2. Extent of govt policies
     • a. To promote inclusive growth
       • Curbs worsening y-inequality
     • b. To achieve sustainable growth
       • Curbs deterioration of environment

4. Increase in RGDP

Images and files in the map