Higher levels of economic growth within an economy has a multitude of

consequent effects that both accost and benefit the economy. Increased
economic growth potentially results in harmful effects and costs such as
that of increased environmental harms, and inflationary pressures within
the price levels of an economy. However, conversely, such economic
growth can also cause positive impacts and benefits, such as that of
increased income per capita, and higher levels of employment.
Currently within the Australian economy, we are observing an economic
growth rate of 3.3%, which is slightly above the trend rate. The trend level
of growth is determined by the RBA to be at 3%, the optimal level of
growth which keeps unemployment stable at 5% without causing
inflationary pressures. Economic growth is defined as the increase in the
output of goods/services produced within an economy over a period of
time, measured in real GDP increases. With current levels of growth, we
are observing an unemployment rate of 5.6%, which fell from the previous
figure of 5.7%, and an inflation figure of 1% in the recent June quarter of
2016.
Economic growth within an economy has the potential to cause a
multitude of costs, foremostly through that of the rising levels of harm
towards the environment. As economic growth increases, this is translated
into an increase in the production of goods/services. This increase in
production likewise causes an increase in the use of factors of production,
such as land, labour, capital and enterprise. Particularly in regards to land,
we observe that more natural (base) resources are required to meet such
increased levels of economic growth, leading to a depletion of nonrenewable/renewable resources. The processes of extracting these
resources are also causes of land degradation and deforestation, and the
consequent transformation of resources into goods/services through
production methods also results in the release of pollutants. Hence, it is
recognised that higher levels of economic growth results in harmful
impacts towards the environment. These effects were able to be observed
within the increase of nominal GDP between 1965 to 2010, from $25.93B
to $1.14T, and the consequent increasing trend of CO2 emissions per
capita from 10t to 17t. However, despite the environmental harms that
occur over the short-mid term, economies may be pushed towards greater
environmental concern and the adoption of more ecologically friendly
practises. The increase within income and leisure time may lead to a focus
on the minimisation of pollution, and the increasing rate of resource
depletion can stimulate demand for environmental quality by enabling
the development and adoption of new technologies. According to a study
published by ACOLA in 2015.
Another harm that arises as a result of higher economic growth are the
inflation pressures caused by demand. As economic growth increases at
an excessive rate, resources are depleted at rate whereby future
production will not be able to meet high levels of aggregate demand. As
the amount of goods/services produced by firms decrease as a result of

resource scarcity, we observe inflation within the economy through firstly,

the increase in demand relative to the level of supply (demand pull
inflation)
(AD, AS Graph)
and the increase the costs of the production (low supply of FOP due to
scarcity),
(Supply of FOP decreasing, Demand of FOP increasing ^ Costs of FOP)
which is deferred onto consumers through price level increases (cost push
inflation). Hence we observe the harms of price instability and inflation
that occurs as a result of economic growth. As the purchasing power of
individuals decreases due to inflation, we observe decreases in the quality
of life as consumers spend proportionately more of their income to
purchase the same goods. This was able to be observed within the Mining
Investment Boom II of 2012-16, whereby the increase in the growth rate
from 1.7-4.2% saw a similar trend of increase in the inflation rate from
1.2-3.5%, as high demand for FOP (i.e. labour and capital) in order to
meet rising export demands from China caused an increase in wage
claims and domestic demand, hence domestic price surges. However,
within the current Transition Phase, despite economic growth is relatively
high at 3.3%, the inflation rate is still extremely low (1%), as slow
increase in prices are not the result of weak demand, but rather increased
competition. Thus, we observe that excessive levels of economic growth
can result in the costs of high inflation, despite recent evidence claiming
otherwise.
Conversely, economic growth also has the potential to greatly benefit the
economy, through that of decreasing unemployment. As economic growth
increases within the economy, we observe an increase in the level of
Aggregate Demand as expenditure increases. As a consequence of this
increase in Aggregate Demand, businesses respond by increasing their
production as to meet rising levels of demand. Firms, spending more on
factors of production, cause an increase in the demand for labour, and
hence a decrease in the rate of unemployment within the economy.
(Supply Demand graph for employment, Demand shifts outwards Wages
^)
Furthermore, as the demand for labour increases, we observe an increase
in the participation rate as wages increase, due to the increase in utility
individuals derive from working compared to leisure time. Thus we
observe the positive impacts of increased participation in the workforce
and decreased unemployment. This was observed within the first Mining
Investment Boom (2004-08), as the growth rate increased from 3.3-5%,
causing unemployment to fall from 5.2-4.2%, as well as shifting the nature
of employment towards the resource sector. However, due to the

technological progresses associated with higher rates of economic growth,

we observe that structural unemployment of labour increases. This was
observed recently within the transition phase, where higher rates of
economic growth and focus within the services sector has caused primary
industry employment within the mining sector to decrease. Thus, despite
some presence of structural unemployment that arises from higher
economic growth, we observe an overall positive trend of lower
unemployment.
Not only this, higher rates of economic growth can also result in higher per
capita incomes and thus a rise in living standards. As the economy grows
at a faster rate, we observe increased production from firms. Within a
mixed market economy such as Australia, most Factors of Production are
owned by private individuals and households (i.e. the supply of labour or
enterprise), and hence increased spending on FOP results in higher real
incomes for individuals. This raises their material standard of living
through raising their purchasing power, and hence allows them to
purchase more goods and services to satisfy more wants and needs. This
lends itself towards greater utility for individuals, whether through greater
standards of nutrition, housing, clothing, education, etc. During the
closing period of the second Mining Investment Boom (2014), whereby
high rates of economic growth allowed for a high per capita gross national
income (GNI) of US $42,261. However, despite this, it can be observed
that this growth in living standards and per capita incomes was not shared
evenly throughout the economy, as a University of Canberra study stated
Growth in living standards of the top 20 per cent grew by around 22.1 per
cent while the bottom 20 per cent grew by just 13.8 per cent. Despite
this, we observe an overall positive trend of increasing living standards,
despite some inequality in these benefits.
In conclusion we observe that higher rates of economic growth within the
economy can result in a multitude of positive and negative effects. The
environmental harms and inflationary pressures that can result from high
economic growth cause both short-term and long-term harms to many
economic functions. On the other hand, decreasing unemployment and
higher per capita incomes greatly raise standards of living and utility,
hence benefitting the economy.