Economic Growth & Recession
Government and the Macroeconomy · 2 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 6% of your exam marks.
New emphasis in the 2027 syllabus; economic growth and recession are now a distinct topic, including causes and consequences of recession. Guidance based on specimen materials.
A typical question asks for advantages and disadvantages of growth, so it helps to hold both in mind.
Advantages of growth
- Higher incomes and living standards, as rising output raises wages and lets households consume more goods and services.
- Lower unemployment, because firms expanding output take on more workers.
- Higher tax revenue for the government (more income tax, more spending taxes), which can fund better public services without raising tax rates.
- Reduced poverty, as more people earn a wage and the government can afford to support those on low incomes.
Disadvantages of growth
- Inflation risk, if demand grows faster than the economy's capacity, causing demand-pull inflation.
- Environmental damage, as more production can mean more pollution, congestion and use of non-renewable resources.
- Greater inequality, since the gains from growth do not always reach everyone equally; high earners and asset owners may benefit far more than low-paid workers.
- A worse current account, because rising incomes tend to draw in more imports.
Discuss whether or not economic growth benefits everyone (8 marks)
What comes up: an 8-mark Discuss question on whether growth benefits everyone (or improves living standards). You must argue both sides and reach a judgement.
Write (both sides): Why it can: growth raises output and incomes, increasing purchasing power; it raises employment and can reduce poverty; it raises tax revenue, letting the government spend more on education and healthcare. Why it may not: the gains may go mainly to high earners and asset owners while low-paid workers see little; growth can cause inflation that erodes the real incomes of the poorest; growth can damage the environment, harming living standards in other ways.
Watch out: do not simply reverse a "benefit" point to make a "cost" point. Each side needs a genuinely different line of reasoning, and the top band requires a clear judgement on which argument is stronger.