Consequences of EG

Positive
1. 1. Higher MSOL
  1. ↑ Y per capita
    1. ↑ Purchasing Power
      1. ↑ Spending on normal gds
        Fall in inventories
        ↑ DD for FOPs
        ↑ Derived DD for labour , ↑ employment
        ↑ MSOL
        ↑ MSOL
    2. Assuming pop growth > GDP growth
2. 2. Higher Tax Revenue for govt
  1. Increased ability to spend on economy for future developments
    1. E.g. Increased provision of merit goods such as healthcare
3. 3. Increased I (including FDIs)
  1. EG signals rising purchasing power of citizens
    1. Increased expected profitability of I
      1. Fall in direct investments abroad
      2. Increased FDI
        Increased PG and AG
4. 2. Reduced Unemployment
Negative
1. 4. Worsening BOP
  1. Increased purchasing power may lead to increased import expenditure
    1. Worsens BOT under CA
    2. e.g. Locals travel to foreign ctys for holidays more frequently , purchasing more foreign gds
2. 3. High Inflation
  1. If economy operating near or at vertical range of AS
  2. Erodes purchasing power
    1. Undermines benefits of EG
3. 2. Exacerbates y-inequality
  1. Increased y may be experienced predominantly by high-y earners
    1. Increased unhappiness among citizens
      1. Consequences may be severe
  2. Majority doesn't experience ↑ MSOL
4. 1. Non MSOL may be compromised
  1. E.g. growth leading to increased air pollution --> worsens air quality
Outcome depends on...
1. 1. State of economy
  1. Determines whether growth is inflationary
2. 2. Extent of govt policies
  1. a. To promote inclusive growth
    1. Curbs worsening y-inequality
  2. b. To achieve sustainable growth
    1. Curbs deterioration of environment
Increase in RGDP

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Consequences of EG

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	Created by Jia Jun Neo almost 7 years ago