Potential economic growth is the expansion of the productive capacity of an economy. An outwards shift in the PPF represents economic growth. Economic growth enables a society to produce more goods and services in any given period as a result of expansion in its resources. Actual economic growth is measured by the rate of growth of GDP. Actual economic growth may also reflect a movement towards the frontier; for example when an economy is recovering from a period of recession. The AD/AS model can show economic growth. For example, in the diagram below, an increase in the skills of the workforce will enable firms to produce more output at any given price so that the aggregate supply curve will shift outwards from AS1 to AS2. This entails an increase in full employment output (or capacity output).

China is the world’s fastest growing major economy, with growth rates averaging 10% over the past 30 years. China is also the largest exporter and second largest importer of goods in the work. China is the largest manufacturing economy in the world. In the past two decades, China’s economy has been developed very rapidly. The growth of China’s income per capita is much faster than that of any other region in the world. Economic growth in China has had a number of economic and social benefits.

The first benefit of economic growth is the improvement in standards of living. There is also the easing of poverty in developing countries, as absolute poverty can de reduced. According to China’s national poverty line, rural poverty population has dropped from 250 million in 1978 to 28.2 million in 2002, decreasing by 88.7%. The main factor contributing to the decrease in poverty in China, is due to their economic boom. Also, investment in human capital will improve standards of living further in the future.

Not only will standards of living increase, but there will be an increase of jobs available. Economic growth creates new jobs. An example of this is the technological advance in China’s industries have had a strong impact on employment and productivity. Due to an increase in jobs, more households will receive an income, and some households experience an increase in their incomes. Not only do the households benefit from this, but so do firms. As households earn more and consume more, the firms end up making higher profits as more money is being spent on their goods/services. The government also receive a higher tax revenue. This higher tax revenue improves the capacity to provide public goods for the society to benefit from.

There are also greener alternatives being introduced in China. For example, alternatives to coal being used for energy are being used. Renewable energy entrepreneur Li Hejun introduced the idea of using solar panels to generate solar energy. This has many environmental benefits, as it protects the environment in many ways. Using solar energy reduces the amount of pollution and carbon emissions that would be released into the atmosphere from combustion of fossil fuels to produce energy.

Economic growth may increase productivity and enhance technological capability, but not all of the effects of economic growth are positive to the whole society.

The biggest negative effect that economic growth has on China is their level of pollution. There is a huge degradation of the environment due to all these technological advances. Whilst these technological advances may be increasing the productive capacity of the economy, it has a damaging effect on the environment. The pollution generated from economic growth reduces the quality of life, as it can lead to a huge amount of health issues and sickness within the poorer communities of China. This huge amount of waste and pollution is also affecting the global climate. Climate change plays a huge role in some of the world’s species being on their way to extinction.

Many of China’s finite resources are being extracted at such a rate that they are being depleted because of over-consumption. There is a loss of natural habitat created through the contraction of new roads, hotels, retail malls and industrial estates. China’s population rate is also growing very rapidly, leading to over-population. This puts increased pressure on scarce land and other resources. Growth that leads to environmental damage may lower the sustainable rate of growth.