Such policies aim to increase the capacity of the economy to produce more goods and services by increasing the quantity or quality of the factors of production. A supply-side improvement can be depicted as a positive rightwards shift of the LRAS curve (LRAS to LRAS1). Price level Real Output Y1 Y LRAS LRAS1 Price level Real Output Y1 Y LRAS LRAS1 AN1 AN1 AP1 AP1 AN1 AN1 AN1 AN1 AN1 AN1 AP1 AP1 AN1 AN1 One fiscal policy that might be used to bring about the supply-side improvement of a larger workforce is a reduction in income tax. A fall in the marginal rate of tax, for example a reduction in the additional rate of income tax from 50% to 45% for income earned above £150,000 or an increase in the Personal Allowance threshold from £10,000 to £10,500, will increase households disposable income (post-tax take home). The resultant decrease in households’ replacement ratio (disposable income out of work ÷ disposable income in work) will encourage more people to actively seek work and thus increase the participation rate (the proportion of all those of working age that comprise the labour force and in the UK this figure is 75%) and thus increase the size of the labour force.
Monetary policy is the use of interest rates to manipulate the level of aggregate demand in the economy and loose (expansionary) monetary policy is a reduction in the interest rates. This will result in an injection of extra consumption because it is cheaper to borrow money on credit cards and therefore allowing consumers to spend more which will cause an increase in aggregate demand (AD). Additionally, extra consumption will allow shops to gain more profit preventing “business failures.” Furthermore, mortgages will be cheaper and therefore consumers feel richer and there will an extra injection of consumption. AD will also increase due to an increase in investment, causing an increase in aggregate demand from AD1 to AD2 as shown below. However,
(Hayek, 2008) When wages go up so does the cost of the production, which increases the cost of the consumer goods, and inflation goes up. The only way to sustain this is to have a high money supply. This will cause interest rates to decrease, according to Hayek; if they decrease it can cause investments to be insecurely high, leading to an economic bust-which is how the business cycles work. If a centralized planner is created to watch the industries and when they start failing, a stimulus package will have to be made to support and pick it back up. If the necessary data to watch the
270). Expansionary fiscal policy raises interest rates, whereas contractionary fiscal policy lowers the rates. The way that a person can track the policy that is recommended, is by looking at the output. If it has increased, the price level of such commodity is to rise as well. When there is a larger demand for more expensive commodities, the demand for money increases and the cost to borrow follows.
Increased government revenue is one almost immediate symptom, as the tax cut encourages people to buy more products and services, stimulating the economy and creating more jobs. Less taxes (as a percentage of earnings) going to the government coffers and more staying in the pockets of average taxpayers always has a positive effect on the overall economy and allows a vibrant free democracy to thrive and
Innovation impacts the cost of production as well. Even the innovation helps in lowering the cost of production and making economies more efficient – producing more outputs with the same number of inputs. Technology affects market structure. In today’s market world, technology advances more rapidly because individuals gain incentives, in the form of profits, to discover new and cheaper ways of doing things. Even the dynamic efficiency refers to a market’s ability to promote cost-reducing or product-enhancing technological change.
If exports were to increase this would result in an increase in AD, as the balance of payment is a factor. The subsequent result of this increase in AD would mean an increase in supply, leading to an increase in the rate of employment, as firms are forced to take on more workers in order to fulfil demand. This means that the increase in exports would reduce specifically cyclical unemployment ( demand deficient unemployment). This is because the increase in exports would result in a increase in AD, hence curing the deficient demand. Furthermore, the cost of the formerly unemployed, i.e.
The organization enjoys an image as a value-branded confectioner that passes its savings to the customer (Kimmel, Weygandt, & Kieso (2009). To deliver the best quality product, the company invests in updated equipment to maximize production efficiencies. To continue to maintain its positive marketplace image to consumers and vendors, TRI will use the loan proceeds to further update equipment and incorporate advanced
Bill Mckibben talks about the consequences of economic growth in chapter one “after growth” of his book “Deep economy”. He discusses three major problems that economy brings as it grows, which are income inequality, environment destruction, and happiness. He says these three objection mesh suggest that people will no longer be able to act wisely, either in our individual lives or in public life. Mckibben starts off the chapter by discussing the problem of income inequality. He shows that the real income of the bottom 90 percent of American taxpayers eanred $27,060 in 1979, $25,646 in 2005, which tells us that though our economy has been growing, most of us have relatively little to show for it.
In order to help the economy’s growth in the future Government spending can be used if used for extra capital spending. This leads to an increase in the stock of national assets. For instance, an increase in the transport infrastructure will improve the supply-side capacity of the economy which will promote growth. This is estimated through the cost-benefit analysis. Another, way to establish growth in the future would be to use budget deficit as a tool or demand management.