Question

Since 1880, U.S. real per capita GDP has increased at an annual average rate of 2%.
But, there are almost constant fluctuations about that 2% growth rate. What important factors
affect the growth rate and what important factors affect the fluctuations? What can
policymakers do to alter the growth rate or to moderate the fluctuations? If you were economic
czar, how would you conduct economic policy?

Answer 1

Ecgnomic Growth rate of a nation represents the pace at which its economy is growing and thereby represents the clear picture of the economy of a nation. The following are the six major factors that affects the growth rate of a nation

· Quality of Life

· Poverty and economic Inequality

· Non-marketed activities

· Underground economy

· Environmental quality and resource depletion

· Leisure preference

                                                   Life indicators that represents the basic aid to live is one of the primary factor that affects the growth of an economy, Access to these basic needs and healthcare would result in improved productivity of the economy and would result in the growth of economy itself. If there is a rise in poverty, it clearly depicts the spread of economic inequality which could lead to a downfall in the growth. Although some countries may have identical GDP rates, the growth achieved may be different if there is an evident economic inequality in the country. The presence of an underground economy is also a threat to the growth. An underground economy refers to the illegal economy like counterfeiting and similar tactics and many illegal trading and holdings that are intended to evade the tax benefits of an economy. With respect to the environment, the presence of a healthy environment is always a boosting factor for an economy. Non-marketed activities refers to those activities that doesn’t form a art of market action like various NGO activities that improves the social welfare of a nation. Alon with all these, the presence of leisure availability to the working class stands out as the major factor which would result in increased productivity of a nation and thereby helps in development of the economy itself.

                                    The following may be considered as the major factors that affects the fluctuations in the growth of an economy.

· Demand and supply side shocks

· Increase in the aggregate demand which may result from increased consumption, balance of payment surplus or a rise in the government spending.

· Labour shortages

· Increase in imports and variations in foreign exchange rates

· Effects of inflation and currency fluctuations

· Externalities and natural calamities

                                                   Thus, it can be seen that many factors affect he economic growth of a nation and the policy makers are expected to make many decisions so as to sustain a positive economic growth. Some of the actions are as follows

· Monetary and Fiscal policies to deal with fluctuations in the economy

· Amendment in labour laws so as to provide a healthy environment for production.

· Amendments in EXIM policies and revamping of domestic production strategies so as to promote exports

· Maintenance of proper exigencies funds to deal with natural calamities

· Implementation of laws strictly so as to obstruct illegal economic activities so as to improve the tax incomes

                                               Apart from the above basic strategies, If I would have been an economic czar, the following steps would also be implemented to impart economic growth

· Identification of the basic nature of all regional economies and developing a production strategy that suites regional economies

· Development of local production strategies and implementation of latest technology in production mechanisms of rural areas

· Identifying the potential sectors and managing funds so that the potential ones receives more funds for its development

                                                   GDP and Economic growth are in fact two terminologies. If a nation is to develop, it should focus on attaining economic growth rather than just a GDP growth.