Question

1.In country A, government increases spending on building infrastructure. However, the economic growth of the country remains slow. Explain why. (Don’t just say that building physical capital is not sufficient for a country to grow.)

2. In country B, political unrests always occur, and these decrease economic growth. Explain why political unrests reduce firms’ investments and human capital of country B?

Answer 1

1.

GOVERNMENT SPENDING- government spending is considered to be a concept of macroeconomic level problem and concern. simply increasing the level of public expenditures like construction of building and other public good like construction of roads , dams , bridges may or may not lead to economic level of a country. various reasons can be seen behind it.

economic development may depend on various factors, we can study some of the factors below

• assuming the current scenario the economy has been facing the problem of COVID-19 problem and to boos up the economy the government has initiated a huge public expenditure, but in this situation the MPC would be low because due to the panic situation the people would spend the amount on only essential goods and therefore save more as a result the MPC would be less and MPS would be greater and size of multiplier would be declining.
• therefore the economic development doesn't solely depend upon the government's expenditure, it also depends upon the reaction of the people whether they are ready to spend the earned income or not?

2.

POLITICAL SECTOR -

• political sector is a very vital , dominating and essential concept of any business environment. political environment can affect the business effectively or adversely depending on various situation.
• if a country has stable political sector then it can rely on the steps and decisions taken by the government. businesses have faith in the decision and reliability on the government. then the economy will develop at leap and bound.
• but now assuming the situation there is always unrest in the situation in the political sector in the economy, then there would be a lot of confusion in the decision making of the party and further the business persons won't be able to rely on the decision made on the policies of the government.therefore the sectors won't be able to grow at fully capacity , further if the unrest prevails then the man power or the labourer would start migrating to another area where the political stability persist.
• as a result the investment in the economy would decline because business concerns are not fully confident upon the decision taken by the political party.