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ECONOMIC GROWTH (Problems of recession (Loss of output and welfare (Fall…
ECONOMIC GROWTH
Problems of recession
- Loss of output and welfare
Fall in economic output--> Decrease in mSOL due to less goods and services available for consumption
Level of output in economy falls, firms require less labour to produce lesser amount of goods, cutting back on employment
- Strain on government budgets
Government would collect lesser income tax due to higher unemployment and spend more on unemployment benefits
- Negative outlook and pessimism
Result in a lack of confidence, Households will consume less, Firms will invest less
- Could cause a deflationary spiral
Househols and firms expect prices to fall further, withholding their spending to purchase goods and services at a later time at lower prices, resulting in further fall in output and incomes
Types of growth
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Inclusive growth
Economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society.
Measured by..
- Growth and development
- GDP per capita, labour productivity, employment, healthy-life expectancy
- Inclusion
- Median household income, poverty rate, Income Gini, Wealth Gini
- Intergenerational Equity and Sustainability
- Adjusted net savings, Public indebtedness, carbon intensity of economic output, dependency ratio or proportion of retirees and youth to the working-age population
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Policies to encourage EG
Expansionary Fiscal Policy
(a) Policies to encourage investment
- Tax concessions to encourage investment
- Government expenditure on infrastructure
- Government expenditure on investment on human capital
(b) Policies to encourage technological improvements
- Tax incentives to stimulate foreign investment
- Tax incentives to stimulate R&D
- Government expenditure to provide greater and better educational facilities
Monetary policy
- Influence interest rates/money supply to encourage investment in capital goods and new technology---> affect AD
- Influence the exchange rates to affect the balance of trade--> affect AD
Supply-side policies
- Development of human capital through education and training and retraining of skills
- Development of infrastructure
- Development of R&D resulting in technological progress
Causes
Actual EG
Demand-side factors
- Growth in any of the AD components [C+I+G+(X-M)]
Potential EG
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EXTERNAL FACTORS
- International trade opens up markets for exporters and enables exporting firms to enjoy economies of scale.
- If trading partners have slow growth, this limits the countries opportunities for investment and growth
STRUCTURAL FACTORS
- Favourable cultural, social and political environment would promote growth
- Legal institutions are needed to enforce contracts between parties of economic transactions and to protect private property rights. When property rights are enforced, it creates an incentive to work hard and accumulate wealth
- Social structure that allows fluid mobility based on performance and merit is more conducive than a rigid social structure that puts premium on the station of one's birth.
Measurement
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Economic development
- Economic Indicators
- Non- economic indicators
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- Physical Quality of Life Index(PQLI)
- Measure of economic welfare (MEW)
- Human Development Index (HDI)
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