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Advantages of Economic Growth

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Published: Mon, 03 Jul 2017

Economic growth can be defined as a process for indicating the increase or decrease in per capita GDP. There are a lot of other factors such as increasing in aggregate income of the individuals reflect economic growth. Economic growth is usually calculated as the rate of GDP changes in a particular period. The total of goods and services produced considered as a reflection for economic growth in the country. It can either be negative or positive in depend on the decrease or increase compared to data of previous years. Negative growth is often indicated to economic recession. When the GDP of a country increases means there is a economic growth existed in the country or the global economies

Advantages of Economic Growth.

Standard of living of the people will increase

  • Economy growth is an important point to bring better living standards and lower rates of poverty. The average income of people can said that increases and indirectly people able to consume more and motivate the economic growth increasing.

Rising Employment

  • Economic growth stimulates employment. The economic growth produces more vacancies for job and bring better standard of living to them.

Increased capital investment.

  • Economic growth can used to increasing the capital investment.

Benefit to Government

  • Economic growth brings advanced tax incomes for the government, Because of this, the government spends less unemployment benefits.

Superior public services.

  • Due to government got government income as economy growth, it can spend more on public services like education for contributing in superior public services.

Enhanced business confidence

  • Economic growth creates positive effect as encourage people running their businesses. As profits of small firms and business increase with economic growth, their business confidence and will to grow up to meet more challenges.

Disadvantages of Economic Growth.

inflation

  • Potential High and rising inflation will occur due to demand grows faster than long run productive. It may destabilizing for an economy as interest rate may increase and can cause a loss of competitiveness in international markets

Regional disparities

  • Although average living standards may be rising, there is a gap between rich and poor. It can widen the issues of poverty and make a wide gap between different regions.

Pollution

  • Economic growth never separated from environmental issues. Rapid growth of production and consumption may create environment pollution such as sound and air pollution and road congestion. Environmental damage may bring negative effects on our quality of life. For the example, road congestion will produce more Co2 in a high density area. The health of residents in that area will been affected.

Relationship between unemployment and economic growth.

How does unemployment affect your economy?

  • Wealth drainage

The government need provides monetary assistance when someone unemployed, so a high unemployment rate means that it has to pay more fund to help a large number of unemployed people. It is creating a heavy burdenfor a government. Wealth is drained for unproductive purposes and economic growth slows down.

  • Slack in flow of money

Unemployment slows down the circular flow of income by the lack of money inflow and outflow. When money does not pump into the economy, its growth becomes slowed down even stuck.

  • Wage inflation

As the increasing in competition for vacancies of jobs and wide availability of labor, the cost of labor reduced. For those who are employed will be affected as rise in unemployment. So that we can see that reduction in salaries and wage leads to decrease in the amount of tax collection on the income. This will decrease sufficient funds to pump into the economy.

  • Reduction in consumer expenditure

The unemployed are naturally trying to cut-off their financial budget for expenditure during the period of unemployment. This issue leads to reduction in consumer expenditure due to financial limitations. In the retail sector, the company often fire their employees due to reduction in output and maintain profits and cut off their budgets to survive as decreasing in sales translates.

  • Increase in debts

Due to decreasing in availability of funds with the government to invest in public spending, gain from investment will be reduced. The government will raise tax rates. Lesser capital flow in the economy will case debts and borrowings come with interest. it will increase the financial burden for people who unemployed or earning lesser income, it will be harder to repay debts. This increases mortgages on housing, instances of bankruptcy and deflation.

  • Under-utilization of resources

High unemployment rate will produce wastage of labor productivity, under-utilization of the machinery and raw sources to produce output to match less demand for goods and services. Negative growth in demand and supply leads to deflation

  • Decrease in return on investment

High deficit is an outcome of high unemployment in the economy. Due to high unemployment, national income tax is low .So, government get less return on investment (ROI) as fewer budgets to invest. After that, this will affect confident of investors to government, they may start pulling out money from the economy to invest in other more effective industries.

The consequences of unemployment to the Malaysian economy.

  • Unemployment Rises

Many issues will be occurs if cases of unemployment would not be reduced. Many people who unemployed are looking for limited job and this will benefit the employers that they need paid less salary for employees only as employees need to get the job , in the most simplest way, they willing to work with a few of salary. In the other side, the wage inflation will rise. Price of goods of service will maintain but their salary is feww. People need to cut off their financial budget by reducing expenditure for surviving. After that , profit of business will affected. The owner of business may decide to fire his/her employee to shorten the budget and the unemployment occurs. That is a negative circular.

  • Unemployment reduced

With the economic growth, unemployment reduced but inflation occurs. Cost of all goods of service rise. Besides it, the economic growth will cause environment pollution because many factory and company is built up such as water and air pollution.

Unemployment influence and effect economic growth.

  • Unemployment financial costs

In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out.Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost.

  • Spending power 

The spending power of an unemployee reduce drastically and they would like to cut off they expenditure , so that their consumer power will decrease, the economy growth will slow down.

  • Reduced spending power of the employed

Increased taxes and the insecurity may affect the spending power of the working people and they too may start to spend less since they worried meet the unemployment.

  • Recession 

With the increase rates of unemployment, other economy factors are significantly affected, such as: the income per person, health costs, quality of health-care, standard of leaving and poverty. This will cause all economic growth slow down even stuck.

Unemployment and Inflation.

Inflation and unemployment is an inverse relationship, so an increase in unemployment will cause a reduction of the inflation rate. The more the entrepreneur create employment opportunities the more he has to pay for production and the more the cost of producing a unit need to paid .So in order to maintain the profitability, the entrepreneur will increase the price of that product. There is another similar process will be observed through out the economy when the government intends to create job. The price of products or services once the workforce is installed, will increase the rate of inflation. But it is still possible for a nation to have high unemployment and high inflation at the same time. It is because of factors such as oil prices, which is a situation known as stagflation. Central banks set an acceptable level of inflation. To reduce it, they will reduce the amount of money for businesses to borrow when the unemployment rate is too low.

Okun’s Law describes that there is a inverse relationship between unemployment and national output, show that low unemployment will result higher national output. In the other word, as more people work, the output of the nation will increase. As a economist, A. W. Phillips said, there is as more people work, output increases, then the wages rise, cause consumers have more money to spend more. In the result, as consumers demand more goods and services, finally will cause the prices of goods and services increasing. So, We know that Phillips showed that unemployment and inflation are in an inverse relationship: inflation rise as unemployment fell, and inflation fell as unemployment rise. 

In the end, we can know that unemployment rises during business circular recessions and drops during business circular expansions. Inflation drops during recessions and rises during expansions. When unemployment increase , the inflation will decrease .Inversely ,the unemployment drops, the inflation will increase.

Malaysia Economic Outlook 2011

-GDP Growth Rate, Inflation & Unemployment.

The economic condition of the entire world attained significantly rise from final quarter of the previous year to the first two quarters of 2011.

In the current financial situation, the financial condition of Malaysia has shown some recovery. This fact is clearly reflected by Malaysia economic outlook 2011. The economic growth of the country is predicted that it may rise at highest rate of 3.7 percent.

But The Gross Domestic Product in Malaysia increase 3 percent in the second quarter of 2012 over the previous quarter. Historically, from 2000 until 2012, Malaysia GDP Growth Rate averaged 1.2 Percent reaching an all time high of 5.9 Percent in September of 2009 and a record low of -7.6 Percent in March of 2009. We can see that there are a circular annually.

Malaysia GDP Growth, Unemployment and Inflation Rate 2011.

The gross domestic product (GDP) is one of the measures of national income and output for a country’s economy. The gross domestic product (GDP) can be defined as the total expenditures for all final goods and services produced within the country in a specified period of time.  Malaysia is a fast developing country in Asia. Malaysia, as a middle-income country, it has transformed itself since the 1970s from a role of producer of raw materials into an emerging multi-sector economy .The Gross Domestic Product (GDP) in Malaysia was worth 278.7 billion US dollars in 2011, according to a report published by the World Bank. The GDP value of Malaysia is roughly equivalent to 0.38 percent of the world economy. Historically, from 1960 until 2011, Malaysia GDP averaged 55.6 billion USD reaching an all time high of 237.8 billion USD in December of 2010 and a record low of 2.4 billion USD in December of 1961.

The unemployment rate is defined as the level of unemployment divided by the labor force. The labor force is defined as the number of people employed plus the number unemployed but still seeking work. The unemployment rate is also a good indicator for the economy is operating at full capacity. The unemployment rate in Malaysia was last reported at 2.8 percent in June of 2012. Historically, from 1998 until 2012, Malaysia Unemployment Rate averaged 3.4 Percent reaching an all time high of 4.5 Percent in March of 1999 and a record low of 2.8 Percent in March of 2012.In 2011,the unemployment rate reached at all time high of 3.4 Percent in February and lowest of 2.9 Percent in March . 

Inflation refers to a general rise in prices measured against a standard level of purchasing power. There are many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. The inflation rate in Malaysia was recorded at 1.4 percent in July of 2012. Historically, from 2005 until 2012, Malaysia Inflation Rate averaged 2.7 Percent reaching an all time high of 8.5 Percent in July of 2008 and a record low of -2.4 Percent in July of 2009. In the Diagram below, we can know that the inflation rate reached an all time high of 3.5 Percent in July 2011.

 


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