Economic growth has several implications for the economic and social conditions of a country. When an economy grows, it creates opportunities for individuals and companies to earn more. The reason for this is that it generates new demand for products and services that businesses produce and consumed by individuals.
Therefore, it is stated that economic growth increases the productive potential of an economy, which is measured by the GDP growth rate. In the same way, economic growth uplifts people out of poverty, which implies that it helps in elevating living standards. An economy experiencing economic growth will have more money being circulated and generated. Businesses will be able to employ more employees or give higher salaries to their current employees as they seek expansion and earn higher profits. It has a positive impact on the disposable income and savings of individuals or households residing in the economy, which means that GDP per capita increases.
They start spending more to acquire products or services that are regarded as contributors to the rise in living standards. The growth of productivity leads to a decline in the cost of goods, which lowers the cost of living. It is stated that economic growth with a close gap between aggregate demand and aggregate supply causes a moderate level of information. However, if there is excessive economic growth, it creates a gap between aggregate demand and aggregate supply. It implies that economic growth increases the aggregate demand. If it grows at a faster pace than the aggregate supply, then it causes inflation to rise, as depicted below, which leads to an increase in the cost of living.
Figure above shows that economic growth increases the aggregate demand, and, in the long run, inflation increases prices, and eventually, the cost of living goes up. It implies that the cost of living will increase in this case, and there will be a diminishing utility of income. It was noted the US economy experienced strong economic growth in 2018 that pushed house prices to go up, which means that the cost of living appreciated sharply. Thus, it can be concluded that countries with poor governance and weak support for companies.