Question

If a nation chooses to reduce consumption and increase investment, how would this affect economic growth? In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity?

MUST BE AT LEAST 250 WORDS

Answer 1

• In an economy income earned is spent on either consumption or saving and saving is further converted into investment.
• if in the economy consumption is reduced that means people/nations are intended to save more amount rather than spending them.it means the MPC would decline and MPS would increase and saved amount would be available in the economy as a manner of investment.but we must note that when the MPC is low the impact and size of multiplier would also be low and thus there would be inefficiency concerned with the investment function.
• people would be intended to spend less and save more than there would be increase in the unsold stock and production process would slow and unemployment would increase and economy would face recession and thus vicious circle of poverty.
• ultimately there would be excess supply of funds for investment and less demand for it.people would discourage concerned with their savings habit and use the funds for the consumption of goods and services rather than risking their fund at lower rate of interest.and thus the quilibrium point would be restore to the earlier point.

POLICIES CONCERNED WITH PRODUCTIVITY- fund can be invested in various manner concerned with production sector and distribution sector as mentioned below-

1. BETTER MEAN OF COMMUNICATION
2. BETTER FINANCIAL FACILITIES
3. BETTER MARKETING FACILITIES
4. SPECIAL MARKETS FOR LOWER AND MEDIUM SECTOR ENTREPRENEUR
5. SPECIAL INCENTIVES FOR UTILIZATION OF GREEN ENERGY.

all above methods may lead to improve the overall growth in the economy and it's productivity.