Question

US Economic growth has been criticized as being too slow. Why do we care? Compare the US growth with foreign countries. You pick the countries that you think the US should care about and explain how and why the economies in these countries have diverged in economic growth. Explain in detail.

Answer 1

Answer :

The economic growth of a country reflects its overall development. If the economic growth is high that means there is high per capita income of people, low employment, high infrastructural development, higher level of education and high foreign trade etc. and if economic growth is low than there will be low income level, high unemployment, low education level, poor health services etc.

That’s why we care because If the economic growth of US is too slow it means the development of people welfare is also low, large number of people are unemployed and wage rate is low etc.

Comparison of US economic growth with China and Canada:

We have picked these countries as they are the highest trading partners of US.

• US economy is developed economy while China is a developing economy. But the Chinese economy is growing faster than US economy and spreading its foreign trade all over the world. China is the highest trading partner of US so US should care about China because the change in economic dimensions of China will also affect the US economy. These countries have divergence in economic growth due the type of their economy as US is developed while China is developing, being a developed economy US has exploited its natural resources while China is still exploring its natural resources, the population of china is very high as compare to US so the labour force is available at low cost while there is high labour cost in US due to which they take low cost labour from other countries keeping unemployed their own labour force and the US import from China is higher than its export to China.

  

• The US economy and Canadian economy are almost similar as they both are developed country but due to their growth rate, labour productivity, government and trade policies etc. they differ. Canada is the second largest trading partner and neighboring country of US so any change in economy of Canada affects US economy. The economic growth of US and Canada diverge from each other because the foreign trade policies differ in both the countries, the taxation rates, government spending and different type of monetary and fiscal policies are different in both countries resulting diverge economic growth rate.