Question

What are debt-led and profit-led growth regimes, and what are their significance in terms of policy?

Answer 1

Debt-led growth regimes: when the growth of economy increases due to increase in debts is called as debt-led growth regime. Country takes debt from inside and outside to meet their expenditures which increases money supply in the economy and leads to increase in economic activities.

Profit- led growth regimes: when there is increase in profit share and decrease in wages of workers. Firms or businesses cut the wages of workers to increase their profits. Profit-led growth regimes reduces the economic activities and growth by reducing wages of workers as it leads to reduce in consumption expenditure of workers.

There significance in terms of policies: they play important role in deciding any fiscal and monetary policy as both the regimes affect economic activities and its growth. Government adopts various wage policies and wage bills to maintain the wages of workers to reduce negative impacts of profit-led growth regimes. They make various development policies to increase revenue and economic growth so that they don’t have to rely on debt-led regimes to meet their expenses, though debt-led growth regimes increases economic activities but it also creates debt burden on the economy.