Economic growth pros/cons

Essay by hafzaa123High School, 11th gradeB+, November 2014

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  • Increased government expenditure from income tax on investment in education/training of workers ( such as university) means the labour force overall has a better set of skills thus their productivity increases leading to a growth in real GDP and ultimately a rise in economic growth.

  • Expansionary fiscal policy-Lowering income taxes means that consumers real incomes rise and so does their purchasing power. This leads to an increased AD (aggregate demand) for goods/services. This means that firms need more workers to supply and manufacture this extra AD- which means increased employment and also fulfilling one of the major macro-economics objectives. Increased employment leads to economic growth. Ultimately this depends on whether this extra spending goes on foreign exports leading to capital out flow of hot money out of the economy; or the fact of if people spend this extra money or decide to save it.

3)Expansionary monetary policy- Lowering interest rates reduced incentives to save money in banks because the return is much smaller- therefore increasing incentives to spend- leading to a multiplier effect as employment rises due to factories requiring more workers to supply and manufacture this extra AD---> leading to economic growth. Again this is dependant on the reasons evaluated above ^

  • A rise in the value of the pound- for example caused by the fact that there might be more foreign investors saving in British banks due to interest rates being high; so incentives to save there are higher. This means more British pounds are bought leading to a rise in value of the currency. This once again attracts inward investment from large firms abroad who see the strong currency as an incentive for their firm and profits; so Mnc's might re-locate to that country and set up factories in that country. Leading to increased employment and...