growth and the government (Chapter 15 Q & A)

03/04/2013 § Leave a comment

#1. 25 marks.

a) Outline three strategies which governments may use to increase their economic growth rates.

Economic growth is defined as an increase in the total output of goods and services (or GDP) in a nation over time. Rate would then be the amount of growth over time. Economic growth is one of the four macroeconomic objectives of nations. Governments can aim to increase their rate of economic growth by focusing on improving their productivity growth. This means that the government can improve their education, seek capital at the highest quantity and quality, and promote policies towards training their population. If the government can improve their population’s education, then they can raise smarter and more capable workers, therefore human capital would be improved upon through education. This means hiring better teachers, investing more in schools, and really spending more money on education as it is a vital factor in improving human capital. The government can improve their physical capital by increasing the quantity of capital per worker to increase their level of output, resulting in higher economic growth (because then all the workers would have more capital to work with, therefore they would all have the ability to produce more). The government should also invest in seeking the highest quality of capital, like replacing a farmer’s buffalo for an old tractor, and then later replacing that old tractor with a faster, more high tech version. This increases the productivity of that farmer, resulting in an increase of output of his goods. Finally, also to improve their human capital, a good government will promote policies that help to train and make better and more efficient workers out of the population. Not only will this improve a nation’s workers, it also provides jobs – for trainers, and would open up the R&D and HR departments for firms.

b) Discuss whether increasing the rate of economic growth should be the major policy objective of government.

In macroeconomics, a nation’s government doesn’t have only economic growth to worry about. They have three other objectives that they can focus on, and it always depends on their culture and history on what they value more. For example, Japan, between the four macroeconomic goals (low inflation, low unemployment, economic growth, and equal income distribution), would probably value low unemployment over economic growth because of their culture. Japan would break if too many people were unemployed, therefore increasing the rate of economic growth would not be a major policy objective of their government. The same can’t be said for the U.S. though, who seems to value economic growth as well as moving forward more than, say, low unemployment and equal income distribution. Improving and increase the rate of economic growth comes after many things, such as reducing unemployment, improving the quantity and quality of the nation’s resources, training and education the people to improve efficiency, and seeking better technology among other things. Economic growth should then be a long-term goal kept in the back of the government’s minds at all times, but should not be a hugely major policy objective.

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