Question
Extract A: The UK economy from 1997 into the 2000s
UK GDP per capita grew 1.42% a year between 1997 and 2010, a higher average rate than Germany and the US managed in the same period. This was driven by productivity growth, particularly in business services and distribution, where the increasing importance of skills and technological progress contributed to higher productivity. However between 2001 and 2011, the number of manufacturing jobs in the UK declined by a third.
Unemployment in the UK fell from 7% in 1997 in to 5% before the Great Recession, contributing to a smaller fraction of the population claiming unemployment benefit. The number of cars on the road increased from 27.2 million in 2000 to 30.3 million in 2008.
Foreign direct investment inflows into the UK increased from about 3% of GDP in 1997 to a peak of 8% in 2000. Investment increased over the 2000s particularly in intangible assets, such as software, databases, research and development, though its share of GDP remained broadly constant.
(Sources: LSE, SPERI miscellaneous others.)
Question: Evaluate two benefits of economic growth. Refer to Extract A in your answer.
Quick essay plan
Here is a quick plan, with a bullet point for each paragraph:
- KAA (knowledge, application and analysis) paragraph 1: higher employment, higher wages, and higher living standards.
- Evaluation point 1: reduced employment and lower living standards for some workers due to automation.
- KAA paragraph 2: higher investment, including foreign direct investment.
- Evaluation point 2: environmental damage from economic growth.
Model answer (split into four paragraphs)
KAA (knowledge, application and analysis) paragraph 1
Economic growth can lead to higher living standards. Economic growth means real GDP is increasing, so real incomes are rising. This leads to higher disposable incomes. Hence consumers can afford to buy more goods and services, so consumption rises and living standards rise. Aggregate demand rises as C is a component of AD. As a result of higher consumption, those on low incomes are able to afford necessities such as food, energy and water, so the rate of poverty falls and the quality of life increases. Also there is greater demand for labour because labour demand is derived from demand for goods and services. So the unemployment rate falls, so workers earn more money and poverty falls further. An example of this is the period 1997-2010 in the UK, during which GDP per capita grew by an average of 1.42% a year. This contributed to higher living standards.
Evaluation paragraph 1
However not everyone benefits from economic growth. Where technological progress drives economic growth, some workers may lose their jobs due to new technology being a substitute for workers. There were concerns about investment in “intangibles” such as “software” reducing labour demand, so workers may lose their jobs due to new technology. These workers would see reduced wages even if the economy grows, so they can afford fewer goods and services, so living standards fall.
KAA paragraph 2
Economic growth can also boost investment. Economic growth could be caused by higher aggregate demand. This means higher total demand for the goods and services that firms produce, leading to more production, higher revenues and hence higher firm profits. Higher profits provide more funds for investment, increasing investment levels. Economic growth leads firms and international investors to expect higher future demand for goods and services in the UK as well. So UK firms become more confident and invest more, creating an accelerator effect. This includes higher foreign direct investment (FDI) from abroad into the UK too as foreign investors forecast growing demand from UK consumers. FDI into the UK increased from 3% of GDP in 1997 to 8% of GDP in 2000.
Evaluation paragraph 2
However while economic growth leads to higher current and future demand, this could increase the level of pollution as a by-product of consumption. During the period 2000 to 2008, the number of cars on UK roads increased from 27.2 million to 30.3 million. The extra cars lead to higher emissions, causing harm to those with breathing problems such as asthma and contributing to more frequent flooding through global warming. This could lower living standards for some inhabitants of the UK.
Comments on the essay
The essay constructs solid chains of reasoning, uses the extract for application and evaluates well.
Because of this, this essay is likely to score full marks or close to this.
Alternative points could include, but are not limited to:
- The effect of economic growth on the government’s budget deficit / surplus.
- Economic growth may increase or reduce the rate of inflation, depending on the cause of economic growth.
- Economic growth in some sectors such as renewable energy could reduce overall pollution levels.
- The effect of economic growth on the current account or net trade.
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