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Chapter 4

1.3 Economic growth

Why we want growth Counter argument

 More goods produced for people to  Need growth > inflation, i.e. real
buy. growth.

 People earn more so can afford  Need growth per head.
these extra goods.
 Market failure issues – e.g. growth
 Lower unemployment. may be in demerit goods, may
produce more pollution, may be due
 The above should result in an to exploiting the poor, etc…
improved standard of living for
citizens.  Measurement of growth is difficult
given ‘black markets’ and non-
marketed goods.

1.4 Inflation

Why we want low inflation Counter argument

 Inflation causes uncertainty and  If inflation is uniform and
stifles investment. predictable, then not a problem.

 The poor and those on fixed  Those on index linked pay may
incomes suffer. benefit.

 Inflation discourages savings  Companies can see their profits↑.

 In extreme cases the function of
money may break down.

 Inflation distorts the working of the
price mechanism

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