Question

According to the crowding out model, ending discrimination would lead to efficiency gains. Explain how.

Answer 1

Answer: Crowding out model: It is the model of economic theory in which there is a rise in public sector spending and it either eliminates or reduces private sector spending. there are three effects of this model: economics, social welfare, and infrastructure. In this govt. adopts an expansionary fiscal policy and increases its spending to boost economic activity.

The crowding out model, ending discrimination would lead to efficiency gains:

• crowding out model, a relative increase in the public sector may push up wages in order to attract workers from the private sector. this will boost labour motivation, production efficiency and income.
• The increased demand for labour reduces unemployment and tightens the labour market, leading to possible shortages of labour available for the private sector use. and if they join the govt sector they will enjoy social security benefits.
• If the govt, spends on education it will enhance more students in govt. schools and ultimately it will give an opportunity to all type of students to enrol in the schools as less fee would be charged in govt. school
• Economically it will increase taxes on the private sector and higher tax amount in the hands of govt. will give them the path to increase social welfare.
• It will increase savings of the consumer, this increase in savings creates more loanable funds which enter the financial markets, creating downward pressure on interest rates. it will stabilise the economy in the future.
• If the govt. charges more tax from rich and transfer this to the poor it will work as a welfare programme.
• govt, spending in the infrastructure like roads, railways, etc it boosts the economy by creating jobs and boosting demand.