Essay About Actual Growth And Economic Growthlong Term

Econs
Write down multiplier processEffects of i/r, e/r , FP , MP, ss-side policies, Which policies better to decrease BOP/Un/Inflation/ increase economic growthLong term and short term effects of policies→ which one betterEvaluationWhat to look out for in qn→ what concepts to apply (don’t use multiplier if talking about recession cos multiplier reduces severity of recession)Actual growth and potential growthDefinitionsMonetary Policy → AD management tool to influence level of economic activities to achieve macro- economics objectives.Exchange rate → measures the price of a domestic currency in terms of another foreign currency.Interest rate → price of money or cost of borrowing in percentage terms.QE → buying of bonds by the central bank, thus increasing supply of LF and lowering the interest ratesGDP at 2000 prices → total value of final g&s produced within the country in a given period of time at 2000 prices, price in 2000 used as the base year, effects of inflation have been eliminated from the GDP figuresDepreciation/ Appreciation → used when a country on a floating/ managed float system reduces/increases value of its currencyDevaluation/ Revaluation → used when a country on a fixed exchange rate system reduces/ increases value of its currencyEconomic growth→ refers to actual and potential growth achieved by increase in AD/ASActual growth→ increase in national o/p actually produced for a given time period, commonly measured by % increase in real GDPPotential growth→ increase in productive capacity of economy for given period of time. InflationLow inflation is the prerequisite to the attainment of Sg’s other macro goals in the LR → improves BOP, Un, econ growthLow inflation relative to other countries→ improves export competitiveness→ BOT, BOP improvesSize of multiplier in Sg small→ further dampened by inflationary pressures → low inflation help decrease the dampening effect → will cause AD↑ → result in actual growthLow inflation→ attract FDI as foreign investors able to easily predict the future returns on investment projects→ ↑ potential of actual growthPotential GrowthIncrease in current consumption is at the expense of savings→as savings fall→ fall in investments due to less funds for investment and rising interest rates→ fall in productive capacity→fall in potential growth→economic growth will be hindered in the long run.EvaluationThe extent of growth depends on the extent of increase in C, the size of k and the state of the  economy As to whether growth can be sustained depends on the impact on productive capacity.There are many determinants of consumption in an economy. The relative importance of the factors differs from country to country and may also depend on  the prevailing state of the economy. Extent to which other countries (UK & US) will increase dd depends on success of QE in stimulating economy→ most impt factor is hh and business sentiments→ they will determine extent of ↑C & I → which will in turn affect AD of Sg (exports)Extent to which other countries (UK & US) will ↑ FDI is low→ QE needed to ease recession, firms already doing badly cos of recession→ wont want to spend → unless MNC which have significant presence in growing Chinese and East Asia marketsStructural reforms are also required in both countries to improve the competitiveness of the economies. QE cannot be not a long term solution to US and UK economic woes. Sg needs to manage problems(dd pull, financial and property asset bubbles), which could arise from QE in UK & US → has to set in place policies to deal with these possible problems→ modest and gradual app. Of S$ to moderate inflation | cooling measures in property market to curb asset bubble from formingStronger S$ → lower inflation → but negative impact on service industry (tourism) which has little import contentSS side too LT , if need immediate action use FP/MP → but debts may worsen Should pursue both LT and ST solutions to solve the problem What to look out for in qnMany students also did not explain HOW the size of the multiplier will change effect the economic growth rate. They are expected to show that with a smaller k, every round of induced consumption is lower than with a larger k, thus affecting the rate of growth.When a question is specifically on economic growth (17 marks), it is important that students gives a detailed explanation of the k-effect, the k-principle and the k-process (when it starts, how it continues, and when it stops), since economic growth is about a rise in real national income.Need examples, use country names don’t just say country A/BLack of factors explained (must explain 3 factors to gain Level 3 marks)→ in reference to factors affecting consumptionConsumptionAutonomous Interest rate→ fall in i/r →cost of borrowing ↓→ hh borrow more big ticket items cos total cost of consuming ↓→ consumption ↑Expectation of future income→ more willing to spend now→ believe have the means to finance current expenditure→ consumption ↑Government policy→ raise income tax rates→ disposable income ↓→hh have less purchasing power → consumption ↓Induced