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ECONOMIC GROWTH:
Measured as the percentage increase in real GDP (value…
ECONOMIC GROWTH:
- Measured as the percentage increase in real GDP (value of all final G&S pdcd within an econ. in a given time period)
- Measuring in real terms eliminates effect of inflation on GDP
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Potential Growth
- Growth in pdtive cap. of economy
- Actual growth may not occur
- Represented by outwards shift PPC or increase of LRAS
Determinants:
- Improvement of qly and qty of resources to increase Yf
Capital
- Refers to man-made aids to further pdtion, e.g. factories and machinery
- Capital accumulation = increase qty and qly of cpaital investments
- As tech advance, qly of capital increases e.g. equipment efficiency improve; more o/p produced per unit of resource
- Increases pdtivity
- Investment in social capital e.g. roads, telecommunications, hospitals, schools
- Also facilitates economic activities w/in cty
- Greatly increases efficiency with a good transport and comm. network
Entrepreneurial Skills
- Entrepreneurs organise and coordinate FOP, explore new mkts, innovate and take risks
- Dynamic pool of entrepreneurs = more viable the enterprises; as they contribute to better management of scarce resources
- Also better able to exploit mkt opportunities and innovation, hence contribute to higher o/p
- Shifts PPC outwards
Land
- Refers to natural endowments that can be used for pdtion and distribution of G&S
- e.g. Qatar attribute growth to rich endowment of oil; 83% of X is Oil
- But ctys not limited to resources w/in geog. boundaries to achieve growth
- e.g. SG and Japan endowed w/ little resources but resources can be obtained thru international trade
- Tech: can be applied to improve qly of existing land; e.g. irrigation and drainage system
Labour
- Refers to the mental and physical effort, measured in man-hours that ppl apply to the pdtion of G&S
- Econ's ability to produce G&S increases as lbr force grows
- Due to popu. growth, increased women participation rate in lbr force and net +ve migration
- Large lbr force = more manpower= higher o/p (increase pdtive cap. but not pdtivity)
- Lbr force size cnot grow indefinitely
- Improving qly of wkforce through investment in human cap. is more impt (a SS-side policy, also increases pdtivity)
- Overcoming lack of land w/ lbr force: SG and Japan; limited natural resources hence heavy investment in wkforce to raise human cap.; SOL > those ctys that are richly endowed
Costs of Economic Growth
Structural UnN + Inequity
- Note: unN usually comes w inequity
- Rapid rate of EG = increased rate of obsolescence of pdtion methods, machinery, lbr skills
- As a result of econ. restructuring (to tech-based), higher structural unN;
- Bc skills no longer in DD, and lack skills to transit to another job (occ. immobility)
- As low-skilled wkrs are more likely to be displaced from their jobs given an econ. restructuring, rising Y ineqly
- Inequity
- Conflict of 2 macro aims: N and EG
Personal Costs
- EG may not make one happier beyond a certain SOL
- Pressures of competing in increasingly stressful world may lead to stress-related illnesses
Opp. Cost of Growth
- The OC of growth is current consumption forgone
- To achieve growth, firms must invest more
- To increase capital stock, resources that could hve been used to increase pdtion of conr gds are now diverted to pdtion of capital gds
- Hence, EG requires a sacrifice of current satisfaction
- However in LR, there will be greater o/p of conr gds due to EG
Rise in negative externalities + depletion of res.
- Rapid EG brought abt by increased rate of industrialisation and indiscriminate use of nat resources
- Deplete natural FOPs and increase lvl of pollution as facs emit more GHGs
- MEC increases as healthcare costs incurred by 3rd parties (residents living thr) for respiratory dis. increases
- Unsustainable growth in LR due to depletion of resources
Conflict with Macro Objectives
- If AD increases faster than AS, leads to DD-pull inflation
- Increase in EG often causes increase in spending on M, may lead to CA deficit and BOP deficit
Singapore
Quality Growth Programme for sustainable growth (Budget 2013)
- Due to charac. of SG economy, sustainable growth means pdtivity-driven growth
- Aims to help businesses upgrade, strengthen pdtivity, increase capability for new growth industries, create better jobs, raise wages
- Only pdtivity-driven growth can deliver sustainable and inclusive econ. growth in SG
Inclusive growth: Ensuring that no one is left behind
- Is a rate of growth that is sustained over a peiod of time, is broad-based across economic sectors, and creates pdtive employment opp.s for majority of cty's popu
- SG: inclusive growth = econ. growth that takes Y distribution into consideration and does not contribute to worsening Y inequality
SUSTAINABLE EG: A rate of growth that can be maintained w/o creating other significant econ. problems (depleted resources and env.) for future gen.s
- Implies positives and stable growth rate over extended period of time
- Several policies
To tackle negative externalities
- Pigouvian taxes on power stations, explain how it works through diagram
- Limitations: estimation, etc. and also PED<1, hence large amt of tax needed
- EV: giving too high tax may increase industrial COP, leads to fall in Px comp. + necessity, hence lower Y HHs will have to pay higher prop. of income; inequity
Put a cap on rate of resource utilisation
- Avoid growth at all cost policies, as they come at expense of public health and env (MECs)
- Hence don't aggressively use DD mgment policies, to obtain a slower rate of EG (draw diagram)
- e.g. new normal in China
To achieve non-inflationary EG + low structural unN
- SSPs, worker training, increase LRAS
- Draw diagram to illustrate
- Limitations: time lag, costly, not guaranteed
- EV: Must be strategic in choosing FOPs to focus SSPs on (recall: SSP is to increase qty and qly of FOPs)
- Focus on renewable energy resources, rather than increasing qty of non-renewables bc it will be depleted someday
- Focus on improving qly of lbr rather than qty to be more sustainable in the LR
PIC
- Seeks to encourage pdtivity and innovation activities
- Supports SG businesses by defraying innovation and pdtivity costs through tax deductions or cash payouts for SMEs
- e.g. training, automation, R&D
Tightened Foreign Wkr Policies
- Increase in FW levies, tighten requirements for work permits
- Reduce reliance on expanding lbr force, focus on pdtivity
Workfare
- Workfare Income Supplement (WIS) encourage SGeans to work and build up CPF savings for retirement
- Through cash payouts and CPF contributions
- For low income workers
SkillsFuture
- Enable all SGeans to devp to fullest potential
- Allow wkrs to continue their education and training and encourage lifelong learning
- To improve skills and incomes through their careers
- Produces highly-skilled and competitive wkforce
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Possible Constraints
- Amt of reserves the govt holds
- Amt of govt. debts incurred from budget deficits
- Also needs to balance spending on present needs and securing interests of future gens
SUSTAINABLE EG: A rate of growth that can be maintained w/o creating other significant econ. problems (depleted resources and env.) for future gen.s
Policies:
- Accnt for negative externalities
- Ensure non-inflationary EG
- Put a cap on resource utilisation (prevent depletion)
Negative ext
- Pigouvian tax - internalise
- Limitations (ref to other coggle)
EV
- Low Y grp most affected as basic nec like electricity will take up large portion of their Y
- Govt must introduce rebates to help low Y deal w it to prevent inequity
Non-inflationary EG
- SSP: to increase LRAS, allowing sustained, non-infl. EG
- By spending on phy infra like public trans or educn and healthcare
- e.g. Edn and wkr training
- Limitations: LT, high costs, uncertain results
- e.g. SG; yrs of investing in what is perceived as high qly edn yet pdtivity gains are mediocre
EV: which FOPs to target to increase Yf
- Instead of trying to increase qty of non-renewable resources like crude oil and minerals, bc their extraction also discharges a lot of pollutants
- More sustainable to target use of more innovative and high-tech methods, e.g. renewable energy
- Focus on qly rather than qty of FOPs will also be more sus. in LR
Tweak policies to prevent exc. rise in AD (Slow down rate of resource utilisation)
- Avoid "grow now, clean up later" approach; seen in China's rapid EG and then decades of pollution and bad health
- e.g. lower magnitude of exp. F/MPs, to yield a lower increase in AD0 to AD2, instead of AD1 (draw diagram)
- Prevents a sharp rise in GPL, also prevents econ from reaching full N
- Indicates a more accept. rate of increase in op and hence res. utilisation, and more manageable rate of pollution
- Done by avoiding stimulu measures e.g. weakening the Yuan to achieve cheap X, or offering cheap loans to firms to increase I
- e.g. China's "new normal" EG rate of ~6%, down from double digits in the past; indicates that gov is anticipating slower but sustainable EG
EV
- Have to settle for a lower rate of EG, lower growth in DD for lbr and hence slower rise in wages
- Will increase SOL more slowly