Econ Growth + Development Flashcards
How does Growth in Developed countries occur?
Increased AD–> Increased Econ. Output–> Econ. Growth
–Growth is only possible w/ Increased AS
What happens if AD grows without AS
If AD>AS–> Unsustainable Growth- Inflationary as Economy approaches Full Employment
Economy hits a wall- Output can’t Increase further
What happens if AS grows without AD
Prices Fall- DEFLATION
How can sustainable growth occur
Increase in AD + AS
Define L.R Growth
All FoPs are variable- Capital can Increase + develop
What can Increase AD?
Consumer + Firm Confidence- Investment + Spending Gov. Spending Lower Taxes Lower I.R CAN'T be sustained in L.R
Why can’t Gov. Spending be sustained in the LR?
Causes LARGE Deficits- unsustainable
Why can lowering IR be sustained in the LR?
Zero-lower bound- limits extent of policy
Liquidity Trap- Unsustainable
How can LR Growth be achieved?
Supply-side Policies- Sustainable growth
Increasing AD keeps growth going
What factors can Increase AS?
Lower Gov. Regulation- Deregulation
–Limit to amount of regulation that can be removed
Reduce Wages/Input prices
–Limit to amount these can Decrease
Increase Worker Productivity
–Can theoretically increase w/ no bound- best driver for growth?
How can Worker Productivity be improved?
Better align workers w/ Equipment + Technology
Work Smarter, better + More Efficiently
What are the Drivers for Worker Productivity?
Physical + Capital Accumulation
-Capital formation + Education & Training
What is Capital Formation?
-There must be a balance between Savings + Consumption
If Tax on Savings too high- Supply of Loanable Funds too LOW
Lack of Loans–> Too Low Investment
-Taxes on Capital Gains must be Reasonable
Otherwise No motivation to Invest- Lowers Investment
-Workers must be Motivated- to learn + gain knowledge to apply to workforce
Why is UK Productivity growth so Sluggish?
Negative Output Gap- ~18%
Business Capital Spending on Technology fell
Increasing Skill Shortage- Engineering, Specialist Technology + Finance
How can UK boost Productivity?
Increase Spending on Infrastructure- Local Transport (commuting), Internet Connectivity, provide more Housing nearer Jobs
Increase Spending on Research + Skills- R&D- especially by Universities + Allow International Qualified workers into UK labour Market
