Policies are imposed in an economy to promote economic growth which is increasing real GDP. Policies essentially either aim to increase in aggregate demand or aggregate supply. There are demand side policies and supply side policies. Demand side policies become important during recession or period of economic stagnation. Supply side policies are important for determining long run growth in productivity.
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
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
If unemployment falls, less people will be claiming unemployment benefits and other similar pay-outs from the government, this will allow a lot of tax to be spent on other things, such as expanding public services further, which also leads to an increase in living standards. Another benefit of economic growth is the increase in confidence, with all these new goods and services on offer to the country, the consumer
4. What is the relationship between savings, capital formation, and consumption? The relationship between savings, capital formation, and consumption is cyclical. Saving increases capital formation through investments. In turn, capital formation will produce more goods and services for consumers to consume.
In the interpretation of Adam Smith the division of labor and of the society’s progress he sought out two laws that in today's society we know as the law of accumulation and the law of the population. The law of accumulation refers to the accumulation of profits, which are put back into production. By accumulating profits, capitalists can purchase additional machinery, which will keep the division stimulated, the specialization of labor therefore increases productivity. The law of population refers to labor as a subject to demand. As the law of accumulation increases wages for workers, the numbers of the working class will increase.
It further goes on to say that immigration would affect both aggregate demand and supply levels of the economy. The article shows the different ways migrants would affect different areas such as labour supply, job search, capital stock, technology and so on. According to the author, inflow of migrants would definitely increase the level of demand and supply in the economy. It would also boost consumption levels which would in turn increase production levels. The article suggests that the key point to be considered is whether migration would add to the inflationary pressure in the economy.
At last, achieve aggregate demand and aggregate supply to be an ideal balance. Monetary policy is divided into two types: expansionary and tightening. Aggressive monetary policy is to stimulate aggregate demand by increasing the speed of the money supply growth. In this policy, it is easier to obtain the credit, and the interest rates will reduce. Therefore, when the aggregate demand compared with the economic production capacity is quite low, expansionary monetary policy should be taken into use appropriately.
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.
A higher inventory always means to have some financial capital bounded. To compensate some part of this effect, Rolls-Royce’s operations sets the goal to improve its management of the financial working capital. In order to gain higher responsiveness, Rolls-Royce increased inventory, even this may have on an insulated view a negative impact to the financial performance. However, by increasing