If there is spare capacity (negative output gap), then demand side policies can play a role in increasing economic growth. For example if we decrease interest rates, we will increase the demand in the economy as people have more money as their mortgage costs are decreased. It is the same idea with lowering taxes - this will boost demand, as people have more money to spend as less is taken away from them by the government. Aggregate demand is made up of consumption (consumer spending, Investments Government spending and Exports (minus) imports (Net exports). If anything affects these factors will result in affecting the demand.
Alex Thomas Macroeconomics What are the costs and benefits of economic growth to a developing country? In recent years many countries, such as Brazil, India and china are rapidly developing and are experiencing a very high level of economic growth, while economic growth has its many benefits, to both the government and the general population, it also has several considerable negative impacts in the long term, which could lead to an unstable economy in the future if it is mismanaged. One example of how economic growth can benefit the economy is that living standards generally improve, this is because when an economy encounters rapid growth, there is a significant increase in the amount of services and goods produced, therefore the average standard of living will increase. As an economy grows, the average annual earnings increases, for an example India’s annual growth in real GDP in 2000 was only 5.5%, and by 2010 it was 10.4%. As well as increasing living standards, it also benefits the government, as they will see an increase in revenue collected in income tax.
Within this essay, I will be discussing the advantages of this happening as well as the disadvantages that may occur. Furthermore, to understand the question, we must first understand what economic growth is. It is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Firstly, the propensity to consume will increase. This is because the proportion of income spent for the poorer is higher so the redistribution of income will increase consumption and therefore increase aggregate demand.
In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services). At the same time, the government may choose to cut taxes, which will indirectly affect the aggregate
The profitability of companies is recurrent by nature. We expect to see fluctuations in profit according to what’s high in demand in the economy and the level of demand in particular industries. If the market price of a good is more than the opportunity cost of producing it, producers will increase supply in the long run. Profits and losses ensure that, in a market economy, resources are distributed to their highest-valued uses by rewarding those who create wealth and by punishing those who destroy it. So just as profits reward producers for making things people want to buy at prices they are willing to pay, losses punish producers for wasting resources and producing things people don’t want at a cost consumers are not willing to cover.
The advantages from higher minimum wage can have a positive effect on the whole economy flows, while the disadvantages have some negative effects on employment rates. This essay is going to discuss about how higher minimum wage affect economy. Body The effect can be both negative and positive .The supporters assume that a rise minimum wage increases the level of living and reducing poverty and they also think that it is a good way to improve on labor’s right. On the contrary , the others think that it increases unemployment ,specially those workers who are unskilled or handicap and there is possibility of encouraging teenagers to drop out of the school to work. Further more , at this point every small business face trade-off , people running small businesses make decision for changes in strategic by comparing benefits and cost at the margin , as long as the marginal profit exceed the marginal cost .
Companies can grow faster in a developing country than they can in a MEDC which has more competition, and with company growth comes increased investment from the company in machinery and workers, which increases consumption and an increased level of employment, who work for the company. This initial entrepreneurship leads to a multiplier effect with the new workers spending their income, due to increased disposable income and this leads to greater consumption from the workers. The investment into machinery and workers leads to an increased gross domestic product, the value of output from domestic based companies. Foreign investors would be attracted to the developing country due to the high rate of economic growth and the increasing GDP, and the investment comes as an injection into the circular flow of income, and increased foreign investment can further increase the speed of growth for a company, possibly allowing the company to expand to other nations in the long run. The increased entrepreneurship
This is an effect of a lower opportunity cost as the overall cost associated with borrowing has decreased and the marginal benefit of saving has increased, meaning consumers will receive more of a benefit if they purchase goods on credit based agreements opposed to saving, leading to an increase in the amount of credit transactions. This leads to consumer expenditure increasing significantly, meaning more goods are being consumed. Therefore, as consumer expenditure is a component of the aggregate demand formulae an increase in consumption would thereby lead to an increase in aggregate demand. However that said, an increase in consumption largely depends on the consumers’ marginal propensity to consume (MPC) and the overall confidence of consumers. Therefore, if MPC and consumer confidence is at a low, consumers will spend less and save more therefore resulting in a decrease in total consumption levels.
If one household had all the income then it would be one (complete inequality). Inequality in economics encourages individuals to work more. The potential to earn higher incomes produces an incentive for workers to work longer and harder, however, workers will have to give up leisure time in order to gain more work. This will only occur when the extra income is more valuable than leisure time. Output will then be increased, and will boost the economy.
Since privatisation, companies such as BT, and British Airways have shown degrees of improved efficiency and higher profitability due to the competitiveness within their respective industries. It can also be noticed that vast improvements in technology have occurred due to investment in order to achieve these efficiency and profit increases. As efficiencies increase, firms are more willing to produce at a lower price, effectively shifting the supply curve to the right. This causes a reduction in the price from P1 to P2 and an increase in the equilibrium quantity from Q1 to Q2. Another possible advantage of privatisation is an increase in competition as the privatisation of state owned monopolies usually occurs at the same time as deregulation of the industry.