<< Chapter < Page Chapter >> Page >
By the end of this section, you will be able to:
  • Analyze the growth policies of low-income countries seeking to improve standards of living
  • Analyze the growth policies of middle-income countries, particularly the East Asian Tigers with their focus on technology and market-oriented incentives
  • Analyze the struggles facing economically-challenged countries wishing to enact growth policies
  • Evaluate the success of sending aid to low-income countries

Jobs are created in economies that grow. Where does economic growth come from? According to most economists who believe in the growth consensus    , economic growth (as discussed in Economic Growth ) is built on a foundation of productivity improvements. In turn, productivity increases are the result of greater human and physical capital and technology, all interacting in a market-driven economy. In the pursuit of economic growth, however, some countries and regions start from different levels, as illustrated by the differences in per capita GDP presented earlier in [link] .

Growth policies for the high-income countries

For the high-income countries, the challenge of economic growth is to push continually for a more educated workforce that can create, invest in, and apply new technologies. In effect, the goal of their growth-oriented public policy is to shift their aggregate supply curves to the right (refer to The Aggregate Demand/Aggregate Supply Model ). The main public policies targeted at achieving this goal are fiscal policies focused on investment, including investment in human capital, in technology, and in physical plant and equipment. These countries also recognize that economic growth works best in a stable and market-oriented economic climate. For this reason, they use monetary policy to keep inflation low and stable, and to minimize the risk of exchange rate fluctuations, while also encouraging domestic and international competition.

However, early in the second decade of the 2000s, many high-income countries found themselves more focused on the short term than on the long term. The United States, Western Europe, and Japan all experienced a combination of financial crisis and deep recession, and the after-effects of the recession—like high unemployment rates—seemed likely to linger for several years. Most of these governments took aggressive, and in some cases controversial, steps to jump-start their economies by running very large budget deficits as part of expansionary fiscal policy. These countries must adopt a course that combines lower government spending and higher taxes.

Similarly, many central banks ran highly expansionary monetary policies, with both near-zero interest rates and unconventional loans and investments. For example, in 2012, Shinzo Abe (see [link] ), then newly-elected Prime Minister of Japan, unveiled a plan to get his country out of its two-decade-long slump in economic growth. It included both fiscal stimulus and an increase in the money supply. The plan was quite successful in the short run. However, according to the Economist , with public debt “expected to approach 240% of GDP,” (as of 2012 it was 226% of GDP) printing money and public-works spending were only short-term solutions.

Questions & Answers

why economics is difficult for 2nd school students.
Siraj Reply
what does mean opportunity cost?
Aster Reply
what is poetive effect of population growth
Solomon Reply
what is inflation
Nasir Reply
what is demand
Eleni
what is economics
IMLAN Reply
economics theory describes individual behavior as the result of a process of optimization under constraints the objective to be reached being determined by
Kalkidan
Economics is a branch of social science that deal with How to wise use of resource ,s
Kassie
need
WARKISA
Economic Needs: In economics, needs are goods or services that are necessary for maintaining a certain standard of living. This includes things like healthcare, education, and transportation.
Kalkidan
What is demand and supply
EMPEROR Reply
deman means?
Alex
what is supply?
Alex
ex play supply?
Alex
Money market is a branch or segment of financial market where short-term debt instruments are traded upon. The instruments in this market includes Treasury bills, Bonds, Commercial Papers, Call money among other.
murana Reply
good
Kayode
what is money market
umar Reply
Examine the distinction between theory of comparative cost Advantage and theory of factor proportion
Fatima Reply
What is inflation
Bright Reply
a general and ongoing rise in the level of prices in an economy
AI-Robot
What are the factors that affect demand for a commodity
Florence Reply
price
Kenu
differentiate between demand and supply giving examples
Lambiv Reply
differentiated between demand and supply using examples
Lambiv
what is labour ?
Lambiv
how will I do?
Venny Reply
how is the graph works?I don't fully understand
Rezat Reply
information
Eliyee
devaluation
Eliyee
t
WARKISA
hi guys good evening to all
Lambiv
multiple choice question
Aster Reply
appreciation
Eliyee

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask