econ growth Flashcards
Evaluation of growth strategies
industrialisation and tourism might lead to more inequality and opportunity cost of industrilaistion
domestic prodcuers cannot compete if too international and trade liberal
higher savings doesnt guarantee growth and development, consider MPS and debts etc
corruption so aid is ineffective
depends on elasticities of AD and AS
conflicts between policies
time lag
magniturde of the multiplier
prioritisation counts as evaluation!
how to improve productivity
better infrastructure lower corp tax redesigning taxes to inprove competitiveness resdesign benefits improve quality and focus of education healthcare deregulation subsidies more bank lending better training schemes but in an area where there is need for more people
what might MPC consider when trying to acheive its inflation target
domestic demand external demand exhcnage rate oil and other comoodity prices wage grwoth house prices unemployment spare capacity business and consumer confidence
depreciation of currency to improve economic growth: evaluation
depreciation will not improve non-competitiveness and depends on country’s import and export prices
will improve net exports but this only true in the marshall lerner condition
would increase AD but other things might offset this increase
inflation of imported goods
how to increase working population
relaxed immigration but might encourage the wrong people
incraese in age retirement benfits
incentives to have more children- japan doing so w many subsidies
worse unemployment benefits
policies to increase employment
reduce minimum wage so firms hire more, in future they may have more bargainging power tho education worse beneifts income tax improving moniloty of labour free or subsidised childcare
evaluation for policies to increase employment
time lag
budget deficit
external factors beyond control- recession in eu
conflicts in objectives
benefits of economic growth
- Increased tax revenues for the government which may be used to improve public services or redistribute incomes
- Higher profits for companies which may be used to improve quality products or to produce new products
- Consumers’ living standards improve e.g. can afford to buy more goods and services and/or have more leisure time
- More employment opportunities/lower unemployment
- If there is export–led growth, then the current account of the Balance of Payments would improve
- Real economic growth increases LRAS and could lower inflation
- An increase in business confidence which may lead to increase in investment
- Investment in sustainable technology can have environmental benefits
drawbacks to economic growth
- current account deficit
- decline in rate of return on UK investments
- low export growth
- growth lower than target
- struggling goods industries
- output falling in construction/manufacturing
- growing household debt
- imbalance of consumer driven growth
- low productivity
- skills shortage
- house shortages
- burdens on UK manufacturers
market orientated strategies to influence growth and development
○ Trade liberalisation
○ Promotion of FDI
○ Removing government subsidies
§ People say subsidies distort the price making mechanism
§ People are less motivated to improve in order to earn profit bc they have subsidies
§ In the long run possibility for corruption if they become subsidy reliant
§ Environmentally- lower incentive to be more efficient
§ Removing subsidies is a problem politically
○ Floating exchange rate systems
○ Microfinance schemes- world bank having a microfinance scheme in places such as egypt
○ Privatisation
§ More competition to gain profit and market share, more efficiency
§ Widening of share ownership and investment
§ Encourages new entrants
§ Leads to productive and allocative efficiency
§ Deregulation- less red tape (admin) , no holding back on output
cutting corp tax
Interventionist strategies to influence growth and development
○ Development of human capital- training schemes
○ Protectionism
§ Unsustainable in developed countries because you cant have absolute advantage or comparative advantage- specialisation works on a grander scale
§ Leads to dynamic inefficiency
○ Managed exchange rates- J curve
§ Corruption
○ Infrastructure development
○ Promoting joint ventures w global companies- easier to do if have same currency
○ Buffer stock schemes- stabilising prices: maximum and minimum prices
Other strategies to influence growth and development
o industrialisation: the Lewis model o development of tourism- weather, marginal propensity to consume, very labour intensive o development of primary industries- america developing extraction of shale, can cause corruption o Fairtrade schemes o aid o debt relief o increase savings- harrod domar model o increase property rights
what affects the economy in different countries:
- Primary product dependencies
- Volatility of commodity prices- more price inelastic something is, greater the fluctuations in price
- Savings gap: harrod-domar model: keynesian
- Foreign currency gap, for poor countries there will be low saving and ultimately low economics growth so the way to fix that is for foreign aid and investment to fill the savings gap
- Capital flight- when saving sent abroad to e.g. Hide from government authorites
- Demographic factors- size of working age population
- Debt- affects spending patterns, either written off or reduced for countries
- Access to credit/banking- more likely for investment but has to be controlled
- Infrastructure- means more value and access
- Education/skills
- Absence of property rights
- Technology- also has to be affordable
- Income distribution- has an effect on opportunities present
- International trade
Non economic factors of countries affecting growth:
- The environment
- Negative development in warzone countries
- HIV/AIDS
- Geographical location
what is the lewis model
§ Model says that marginal productivity of workers in rural areas doing agricultural work is 0, so there is a lot of un/underemployment in rural areas. Since marginal productivity is so low they can shift that worker to higher productivity, service based areas. This will trigger industrialisation
§ But marginal workers in cities will have low wages anyway
§ Is industrialisation the cause or an effect of growth?
§ Will lead to urban poverty
What about the skills to transfer the person- the cost of this?
