- Education and training are important. Individuals with more education and work skills can generate more goods and services, start businesses, and make more money. As a result, GDP rises.
- Infrastructure is in good shape. Without a working power system and excellent roads, a country’s ability to manufacture and export things is constrained, and businesses’ ability to deliver services is limited. It is feasible to dramatically expand the economy and boost per capita income by investing in good infrastructure, which includes telecommunications.
- Limit the population. China has a population of over a billion people. It has been authorized for decades to allow only one kid per family to minimize the population. Lowering the population can boost GDP per capita, but forcing families to do so is a cruel approach.
What can we do to boost GDP?
- AD stands for aggregate demand (consumer spending, investment levels, government spending, exports-imports)
- AS stands for aggregate supply (Productive capacity, the efficiency of economy, labour productivity)
To increase economic growth
1. An increase in total demand
- Lower interest rates lower borrowing costs and boost consumer spending and investment.
- Increased real wages when nominal salaries rise faster than inflation, consumers have more money to spend.
- Depreciation reduces the cost of exports while raising the cost of imports, increasing domestic demand.
- Growing wealth, such as rising house values, encourages people to spend more (since they are more confident and can refinance their home).
This represents a rise in total supply (productive capacity). This can happen as a result of:
- In the nineteenth century, new technologies such as steam power and telegrams aided productivity. In the twenty-first century, the internet, artificial intelligence, and computers are all helping to boost productivity.
- Workers become more productive when new management approaches, such as better industrial relations, are introduced.
- Increased net migration, with a particular emphasis on workers with in-demand skills (e.g. builders, fruit pickers)
- Infrastructure improvements, greater education spending, and other public-sector investments are examples of public-sector investment.
To what extent can the government increase economic growth?
A government can use demand-side and supply-side policies to try to influence the rate of economic growth.
- Cutting taxes to raise disposable income and encourage spending is known as expansionary fiscal policy. Lower taxes, on the other hand, will increase the budget deficit and lead to more borrowing. When there is a drop in consumer expenditure, an expansionary fiscal policy is most appropriate.
- Cutting interest rates can promote domestic demand. Expansionary monetary policy (currently usually set by an independent Central Bank).
- Stability. The government’s primary job is to maintain economic and political stability, which allows for normal economic activity to occur. Uncertainty and political polarization can deter investment and growth.
- Infrastructure investment, such as new roads, railway lines, and broadband internet, boosts productivity and lowers traffic congestion.
Factors beyond the government’s influence
- It is difficult for the government to influence the rate of technical innovation because it tends to come from the private sector.
- The private sector is in charge of labor relations and employee motivation. At best, the government has a minimal impact on employee morale and motivation.
- Entrepreneurs are primarily self-motivated when it comes to starting a firm. Government restrictions and tax rates can have an impact on a business owner’s willingness to take risks.
- The amount of money saved has an impact on growth (e.g. see Harrod-Domar model) Higher savings enable higher investment, yet influencing savings might be difficult for the government.
- Willingness to put forth the effort. The vanquished countries of Germany and Japan had fast economic development in the postwar period, indicating a desire to rebuild after the war. The UK economy was less dynamic, which could be due to different views toward employment and a willingness to try new things.
- Any economy is influenced significantly by global growth. It is extremely difficult for a single economy to avoid the costs of a global recession. The credit crunch of 2009, for example, had a detrimental impact on economic development in OECD countries.
In 2009, the United States, France, and the United Kingdom all went into recession. The greater recovery in the United States, on the other hand, could be attributed to different governmental measures. 2009/10 fiscal policy was expansionary, and monetary policy was looser.
Governments frequently overestimate their ability to boost productivity growth. Without government intervention, the private sector drives the majority of technological advancement. Supply-side measures can help boost efficiency to some level, but how much they can boost growth rates is questionable.
For example, after the 1980s supply-side measures, the government looked for a supply-side miracle that would allow for a significantly quicker pace of economic growth. The Lawson boom of the 1980s, however, proved unsustainable, and the UK’s growth rate stayed relatively constant at roughly 2.5 percent. Supply-side initiatives, at the very least, will take a long time to implement; for example, improving labor productivity through education and training will take many years.
There is far more scope for the government to increase growth rates in developing economies with significant infrastructure failures and a lack of basic amenities.
The potential for higher growth rates is greatly increased by providing basic levels of education and infrastructure.
The private sector is responsible for the majority of productivity increases. With a few exceptions, private companies are responsible for the majority of technical advancements. The great majority of productivity gains in the UK is due to new technologies developed by the private sector. I doubt the government’s ability to invest in new technologies to enhance productivity growth at this rate. (Though it is possible especially in times of war)
Economic growth in the UK
The UK economy has risen at a rate of 2.5 percent each year on average since 1945. Most economists believe that the UK’s productive capacity can grow at a rate of roughly 2.5 percent per year on average. The underlying trend rate is also known as the ‘trend rate of growth.’
Even when the government pursued supply-side reforms, they were largely ineffective in changing the long-run trend rate. (For example, in the 1980s, supply-side policies had minimal effect on the long-run trend rate.)
The graph below demonstrates how, since 2008, actual GDP has fallen below the trend rate. Because of the recession and a considerable drop in aggregate demand, this happened.
- Improved private-sector technology that allows for increased labor productivity (e.g. development of computers enables greater productivity)
- Infrastructure investment, such as the construction of new roads and train lines. The government is mostly responsible for this.
What are three approaches to boost GDP?
- The monetary worth of all finished goods and services produced inside a country during a certain period is known as the gross domestic product (GDP).
- GDP is a measure of a country’s economic health that is used to estimate its size and rate of growth.
- GDP can be computed in three different ways: expenditures, production, and income. To provide further information, it can be adjusted for inflation and population.
- Despite its shortcomings, GDP is an important tool for policymakers, investors, and corporations to use when making strategic decisions.
What factors influence GDP growth?
Economic development and growth are impacted by four variables, according to economists: human resources, physical capital, natural resources, and technology. Governments in highly developed countries place a strong emphasis on these issues. Less-developed countries, especially those with abundant natural resources, will fall behind if they do not push technological development and increase their workers’ skills and education.
Is a higher or lower GDP preferable?
Gross domestic product (GDP) has traditionally been used by economists to gauge economic success. If GDP is increasing, the economy is doing well and the country is progressing. On the other side, if GDP declines, the economy may be in jeopardy, and the country may be losing ground.
How can you encourage a country’s growth?
Most of the world’s developed countries are in Europe and North America, according to the Human Development Index, while significant areas of Africa and Asia remain poor (South America falls somewhere in the middle). In addition to population growth issues, these developing countries must contend with political pressures centered on the employment of environmentally sustainable growth measurespressures that did not exist while the developed world was experiencing its growth boom. Five simple procedures are outlined below to assist in the development of a country and the growth of prospective international trading partners.
Five Easy Steps to Develop a Country
1. Pool your resources
Obviously, the lower the nation’s ecological footprint, the fewer resources an ordinary household needs. While people in developing nations may not be able to buy electric or hybrid cars, they can save money and oxygen by carpooling, riding bikes, and recycling grocery bags.
At the international level, there are already powerful figures calling for the link between poverty alleviation and climate change mitigation. Lord Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment, cautioned against using high-carbon-intensive resources to assist underprivileged countries. He recently said, “The world is underinvesting in infrastructure, especially in developing countries where there are the greatest unmet requirements.” As a result, he urged governments not to segregate climate and environmental funds from foreign aid, noting that the two must work together to achieve long-term results.
2. Encourage education
From kindergarten fundamentals through sophisticated quantum physics courses at the university, all stages of education are crucial stepping stones to development. Each subject should be taught with the overarching aims of bettering one’s quality of life and improving one’s economic situation in mind. Terrorist groups can’t become stronger without education, and doctors and scientists can’t discover and treat diseases without it. It is one of the most important factors in assisting disadvantaged countries to help themselves. According to studies, the more average years children spend in school, the stronger a country’s economy grows.
3. Women must be empowered.
The most vulnerable groups in a developing country benefit the most from education. Women are the most common demographic among all of these categoriesfarmers, small-scale producers, disease victims, and terrorist groups. Children of both genders are vulnerable, but impoverished boys who do not die young or join terrorist groups are more likely than girls to have enough social mobility to receive an education and leave. Over 70% of girls aged seven to sixteen in Africa’s least educated countriesSomalia, Niger, Liberia, Mali, and Burkina Fasohave never attended school.
Countries may raise their incomes by an average of 23% by empowering women and equalizing educational opportunities. They can do so by building schools closer to rural areas so that farmers’ children don’t have to trek for hours each day to go to and from school, putting a pressure on their parents’ time and finances. As a result, neither parents nor children will feel compelled to choose between farm work and academics, and the poorest populations will be able to make progress.
4. Arrange for key political relations to be negotiated
Americans have witnessed personally what happens when big firms and lobbyists get too close to politicians. When it happens in third-world countries, the poorest and most vulnerable populations suffer the most. This frequently results in violent uprisings with a large number of victims on both sides. There’s a reason why international relations and politics are almost universal undergraduate majors. Aligning with people who wield significant political power and have pitifully few morals rarely benefits the poorer country. As a result, in order to achieve the biggest jumps in ecological, economic, and humanitarian growth, educated people must learn to carefully select their political allies.
5. Reform the food and relief distribution networks
Every day, millions of people throughout the world go hungry. Their problem arises from inefficient distribution networks, not from stinginess among foreign taxpayers. According to Senegalese entrepreneur Magatte Wade, the majority of taxpayer money flowing in from more affluent countries does not truly pay for African or Asian help, partly due to regulatory inadequacies and partly due to theft. She recommended, “Look no further than the people who make the majority of that money.” “That’s where the cash goes.”
Again, the rallying cry should be to assist Africans rather than unskilled aid workers who are unknowingly patronizing them. Rather of investing in resources, shipping, and energy expenses, she believes that Western countries should invest in local African enterprises so that people may better their own circumstances without having to rely on the whims of potentially corrupt and incompetent politicians.
How might a city’s economy be improved?
1. Increase the number of low-skilled positions in exporting industries.
Cities must provide access to a huge pool of employees as well as reasonably inexpensive land to attract low-skilled exporting enterprises.
Cities with stronger economies may be unable to recruit these types of jobs because the cost of land is too expensive for low-skilled exporting enterprises to consider.
Cities with weaker economies, on the other hand, are already in a better position to attract lower-skilled exporting businesses because they already provide the advantages they seek. Continuing to pursue this policy should, at least in the near term, reduce the unemployment rates of low-skilled persons in these cities, thanks to the large number of low-skilled jobs these cities can recruit.
While recruiting these occupations is preferable to drawing no jobs at all in the near term, many cities have been utilizing this technique for decades and have struggled to achieve the levels of economic growth required to properly support low-skilled workers in the long run. At the same time, these rules do not contribute to a varied business environment and limit low-skilled people’s options to only low-skilled professions.
Furthermore, many of the low-skilled exporting employment that exist today are at risk of disappearing by 2030 because to increased automation and globalisation.
12 As a result, towns that seek out these types of enterprises to relieve pressures at the low end of the labor market may face greater issues in ten years.
2. Improving transportation links to improve job access
Addressing job accessibility difficulties in cities with robust economies is what it takes to enhance the economic outcomes of individuals at the bottom of the labor market. In practice, this entails transportation and housing measures.
The economy of these cities is frequently concentrated in the city center. This is true not only for high-skilled employment, but also for low-skilled jobs. In successful cities, 34% of all low-skilled occupations are located in or within a mile of the city center.
Low-skilled employment, on the other hand, are less likely to be located centrally in poorer economies and are more likely to be distributed around the city.
These disparities are unsurprising, given that the low-skilled local services jobs that successful economies generate tend to concentrate near to where demand for them is highest, which is frequently in city centers.
The inference is that increasing the connectivity between suburbs and the city center will allow more individuals to access the various opportunities offered in cities with robust economies.
3. Increasing employment access by constructing more housing
While upgrading transportation is a first step toward ensuring that more low-skilled people have access to strong economies’ labor markets, cities with better economies will eventually need to create more housing.
Housing affordability initiatives, such as providing more social housing or expanding overall housing supply, can make a beneficial influence in these areas when it comes to developing economic prospects for those at the bottom of the labor market. Increasing home affordability would have the immediate effect of making existing job possibilities more accessible to low-skilled workers, as well as the indirect benefit of creating additional jobs in local services as a result of increased population in the area.
However, this will not help all cities. Housing is already affordable in cities with weak economies, therefore adding additional dwellings will not have the same good economic effects.