Why must the economy keep growing?
Category: Business and Money > Economics
Asked by: jeremymiles-ga
List Price: $6.00
23 Aug 2002 08:48 PDT
Expires: 22 Sep 2002 08:48 PDT
Question ID: 57805
Why must the economy keep growing? I read in the news today that the UK economy grew only 0.6% in the past quarter. That seems pretty good to me. Why can't the economy just stay at the size it is now? What would happen if it did stay at the same size? It can't keep growing forever (can it)?
Re: Why must the economy keep growing?
Answered By: snapanswer-ga on 23 Aug 2002 10:24 PDT
Like so many things, the importance of an economic growth rate is relative. An economy can either grow, shrink, or stay the same size. A 0.6% growth rate might be fine provided that it is creating enough employment for a growing population. Economic growth leads to greater output, which can lead to wealth, increased capital per worker, and a higher standard of living. On the other hand, economic decline, recession, or depression can lead to increased unemployment and poverty. Flat "growth" might be sufficient if the number of people in your labor force is declining. If your economy "stays the same size" but, the number of people entering the labor force continues to increase, you will have increased unemployment. Increased unemployment would tend to decrease the purchasing power of the population. At high enough levels, unemployment puts wage pressure on those with jobs, in addition to the lack of wages for those not working. At some point, your industries would need to avoid producing more goods than your consumers could purchase, forcing these industries to shrink further, leading to even more unemployment. Economies can grow for extended periods of time, though the period of "forever" is difficult to guarantee. However, growth is not enough. It is important that growth be steady, or "sustainable", to insure that growth does not lead to other economic hazards and disruptions. I believe you will find the following information interesting: University of California at Santa Cruz, Macroeconomics lecture presentation entitled, "Why should we be concerned about growth?" by Professor Mike Dooley. http://econ.ucsc.edu/faculty/mpd/econ2/Notes/Lecture+12+Growth/sld003.htm "When output grows faster or slower than the population average, the standard of living will rise or fall." Google Search Terms: economies grow ://www.google.com/search?q=economies+grow I hope that you find this information clear and easy to understand. However, if confusion remains, please do not hesitate to request a clarification.
rated this answer:
Thanks. I've been wondering that for years.
Re: Why must the economy keep growing?
From: easterangel-ga on 23 Aug 2002 12:18 PDT
Just an addition to snapanswer's great answer. The economy needs to keep growing since when it becomes stagnant and the population and workforce grows, then there will be a decrease of jobs as said above and also greater inflationary pressure since supply will be low because of no increase in production. When there is higher inflation, people will not be able to save their money in banks, making the latter increase interest on swings to attract depositors. When interest on savings increase fewer people will go to the stock market and corporations and manufacturers will not be able to produce more goods. The economy then tends to go down. Unemployment, bankruptcies and business closures will then follow. However; uncontrolled growth is not good either since when people are more prosperous they tend to spend much more and also put inflationary problems because of supply and demand. Then the irritatiing economic cycle begins. The Federal Reserve attempts to control such economic swings to the best of their abilities. The link below would be a good stop as well. U.S. Monetary Policy: An Introduction http://www.frbsf.org/publications/federalreserve/monetary/ Thanks for the great question! Easterangel-ga
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