Answer to Question #61579 in Macroeconomics for Hellena

Question

whats the trade off in achieving economic growth

Answer 1

The negative effects of an economic growth can be divided in three major categories:
1. Ecology and environment. Higher GDP may lead to higher levels of environment pollution and consumption of nonrenewable resources.
2. Social. Economic growth can lead to income inequality (creating large income gaps between the rich and poor) and the growth of the social tension.
3. Economic. First, when the economy expands it is more likely that inflationary pressures will increase. Inflation is particularly likely to occur when growth is above the long run trend rate. As a result of inflation, economic growth can make export goods less competitive. Also the economic growth can cause the problems in balance of payments (when economic growth is led by consumer spending it tends to cause a growing deficit in the current account).