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Chapter 22: Problem 2

Can economic analysis arrive at the conclusion that economic growth will always improve economic well-being? Briefly explain.

Short Answer

Expert verified
No, economic analysis cannot conclude that economic growth will always improve economic well-being. While economic growth can potentially improve economic well-being, various factors such as income distribution, sustainability, and environmental impact can also play pivotal roles. Therefore, it's more accurate to say that the effect of economic growth on economic well-being is conditional, not absolute.

Step by step solution

01

Understanding the concepts

Firstly, it's important to clearly differentiate between economic growth and economic well-being. Economic growth generally refers to an increase in the output that an economy produces over a period of time, typically measured by Gross Domestic Product (GDP). On the other hand, economic well-being refers to the overall standard of life and quality of living conditions of people within an economy.
02

Analyzing the link

While it may seem that economic growth — an increase in total output — would naturally lead to improved living conditions or economic well-being, that is not always the case. Due to several factors, increased economic output does not necessarily translate into improved well-being.
03

Considering the factors

Several factors can influence how economic growth impacts economic well-being. For instance, if economic growth primarily benefits the wealthy, inequality may increase and the average person may not see substantial improvements in their living conditions. Additionally, economic growth can sometimes be driven by industries that cause environmental degradation, which could negatively impact economic well-being. Thus, it's safe to say that the relationship between economic growth and economic well-being is not a direct one, and we cannot always conclude that economic growth will enhance economic well-being.

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Most popular questions from this chapter

(Related to Solved Problem 22.2 on page 747) Shortly before the fall of the Soviet Union, the economist Gur Ofer of Hebrew University of Jerusalem wrote, "The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of investment, leading to a rapid growth rate of [the] capital stock." Explain why this strategy turned out to be a very poor way to sustain economic growth in the long run.

The Roman Empire lasted from 27 B.C.E. to C.E. 476 . The empire was wealthy enough to build such monuments as the Roman Coliseum. Roman engineering skill was at a level high enough that aqueducts built during the empire to carry water long distances remained in use for hundreds of years. Yet, although the empire experienced some periods of growth in real GDP per capita, these periods did not last, and there is little evidence that growth would have been sustained even if the empire had survived. Why didn't the Roman Empire experience sustained economic growth? What would the world be like today if it had? (Note: There are no definite answers to these questions; they are intended to get you to think about the preconditions for economic growth. Looking beyond this problem, if you are interested in the macroeconomics of the Roman economy, see Peter Temin, The Roman Market Economy, Princeton: Princeton University Press, 2013, Chapters 9-11.)

A columnist in the New York Times observed that "many analysts agree that economic reform, of which integration into the global economy was a key element, has lifted millions of people out of poverty in India." What does "integration into the global economy" mean? How might integration into the global economy reduce poverty in India?

Why are firms likely to underinvest in research and development? Briefly discuss three ways in which government policy can increase the accumulation of knowledge capital.

Some economists argue that the apparent slowdown in productivity growth in the United States in recent years is a measurement problem resulting from the failure of GDP to capture the effects of many recent innovations, such as cloud computing. James Manyika, head of technology at McKinsey \& Company, has argued that for many of these innovations, "we have all these benefits but we're not paying for them." a. Before the arrival of the Internet, people looking for facts, such as the population of France or the salary of the president of the United States, had to go to the library to look them up. Now people can find that information in a few seconds with a Google search. Are the benefits to you of being able to do a Google search included in GDP? Briefly explain. b. Does your answer to part (a) indicate that the slowdown in U.S. productivity growth in recent years is just a measurement problem? What other information would you need to arrive at a definite answer?
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