Economic Growth refers to an increase in the productive capacity of an economy as a result of which the economy is capable of producing additional quantities of goods and services. Normally our standard of living is measured by the quantity of goods and services available to us so that economic growth is synonymous with an increase in the general standard of living. Cost of Economic Growth Cost is entailed in the course of generating economic growth. Increased output requires an increase in the quality and//or quantities of inputs. At the global level this is manifest in the concern expressed at the depletion of natural resources and the environmental damage incurred as the global productive base is expanded in order to meet ever increasing global demand. Similarly, though on a less dramatic scale, economic growth at the national level also imposes costs on the citizens of a country. If it is necessary to expand the productive base of the economy then additional capital goods and services will be required. There are three possible means by which this increase in the national stock of capital goods and services can be achieved.

The first possibility is using national resources that are not currently being employed. (b) The second possibility is diverting resources currently being used in the production of consumption goods and using them to manufacture capital goods. (c) And the third possibility is to import the capital goods required. The point to note is that no matter which combination of these methods is utilised there is a reduction in the general standard of living in the country in the sense that there is a reduction in the quantity of consumption goods and services that is available to the average person. In a modern economy this is achieved through national savings – that is people not buying consumer goods and the savings thus created can be used for investment purposes i.e. the production of capital goods. Page 2 of 6 As a student of accountancy you are involved in this overall scheme of thing in that you are saving by diverting hours that could be used for earning money or leisure towards studying i.e. you are making an investment in your own stock of human capital which will pay dividends in the future.

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