Is Economic Growth always desirable? (AS Revision)

Economic growth is defined as the increase in the productive potential of an economy. Short-run growth is an increase in the use of available resources within an economy. This is best shown on a PPC (Productive Potential Curve). The shift from A-B represents short-run economic growth. This would result in greater levels of consumption, employment and investment. Short-term growth is also defined as the annual % change in real national output. 

PPC curve showing Short-Run economic Growth

From short run growth many benefits arise. An increase in the Real GDP will result in higher levels of income thus resulting in a boost in average living standards. The positive multiplier will ultimately lead to improved confidence throughout the economy for both households and businesses. As stated above this leads to higher levels of investment which will in turn generate long-run economic growth. Tax revenue  will also increase which means projects that may necessarily not have been able to be carried out beforehand could now proceed due to larger sums of funding available. More so, if a country (for example the UK) had a large budget deficit then in times of prosperity, governments can aim to pay this off. 

PPC curve showing Long-Run economic Growth

Long-term economic growth is the increase in an economy's maximum possible output. This can illustrated from the diagram with the shift of B-C. Before, the economy's maximum productivity was at B but due to long-run economic growth and the advantages it brings, the productive potential shifts outwards, forming a new curve. This can be because of a number of reasons. 

The increased confidence in firms and investors will lead to R&D (Research and Development) taking place. If this is successful among firms then the introduction of new technology can consequently increase the productive capacity of an economy. Newer and more efficient capital equipment may lead to a rise in production levels, thus a rise in the supply of both public and private goods.

Despite all these benefits of economic growth, costs still exist. The environmental impact it can have on a country may eventually result in long-term disadvantages to future generations. Using up non-renewable energy sources will increase pollution levels whilst damaging the landscape from the extraction of these goods. Sustained economic growth would be more advantageous as it avoids the negative externalities that arise from market failure (this being the damage from pollution and loss to future generations). Furthermore, quality of life may be reduced due to the increase in working hours and stress put on employers to maintain such high levels of output. In terms of GNH (Gross National Happiness), economic growth that is not sustainable is not in anyway beneficial to an economy. This would mean as an economic indicator, countries achieving long-term economic growth that is unsustainable would be one of the lowest on this measure. Income inequality may also increase and widen the gap between the rich and the poor. This again is the opposite to sustained economic growth which has the desire to reduce the economic, social, environmental and political costs that result from economic growth. 

To conclude, economic growth, even if not sustainable gives firms the money to help improve the environment and develop research for newer, cleaner fuels and technology. Fundamentally resulting in sustained economic growth.