Question

Which of the following is likely to lead to economic growth in the long term?

A) funding for colleges and grants to students in higher education

B) legal fees for contract negotiations

C) printing new money

Answer 1

Greetings for the day,

A) Effect of colleges and grants to students in higher education will lead to economic growth in the long term:

Let’s understand in details:

First, have a look at some of the key points of higher education that helps us in economic growth:

• The knowledge and skills of workers available in the labour supply is a key determinant for both business and economic growth.
• Industries with higher education and training requirements tend to pay workers higher wages.
• Differences in training levels is a significant factor that separates developed and developing countries.
• An economy's productivity rises as the number of educated workers increases since skilled workers can perform tasks more efficiently.

The education and training of a country's workforce is a major factor in determining how well the country's economy will perform.

Many countries have placed greater emphasis on developing an education system that can produce workers able to function in new industries, such as science and technology. This is partly because older industries in developed economies have become less competitive, and thus are less likely to continue dominating the industrial landscape. Also, a movement to improve the basic education of the population emerged, with a growing belief that all people had the right to an education.

A country's economy becomes more productive as the proportion of educated workers increases since educated workers can more efficiently carry out tasks that require literacy and critical thinking. However, obtaining a higher level of education also carries a cost. A country doesn't have to provide an extensive network of colleges or universities to benefit from education; it can provide basic literacy programs and still see economic improvements.

Countries with a greater portion of their population attending and graduating from schools see faster economic growth than countries with less-educated workers. As a result, many countries provide funding for primary and secondary education to improve economic performance. In this sense, education is an investment in human capital, similar to an investment in better equipment.

According to UNESCO and the United Nations Human Development Programme, the ratio of the number of children of official secondary school age enrolled in school to the number of children of official secondary school age in the population (referred to as the enrolments ratio), is higher in developed nations than it is in developing ones.

The enrolment ratio differs as a metric from calculating education spending as a percentage of gross domestic product (GDP), which doesn't always correlate strongly with the level of education in a country's population. GDP represents the output of goods and services for a nation. Therefore, spending a high proportion of GDP on education doesn't necessarily ensure that a country's population is more educated.

Like any decision, investing in education involves an opportunity cost for the worker. Hours spent in the classroom mean less time working and earning income. Employers, however, pay higher wages when the tasks required to complete a job require a higher level of education. As a result, although an employee's income might be lower in the short-term to become educated, wages will likely be higher in the future, once the training is complete.

B) Effect of legal fees for contract negotiations on the economy:

The fixed percentage or fixed fee is determined at the outset of the project, while variable fee and target estimates are used as an incentive to reduce costs by sharing any cost savings. A guaranteed maximum cost arrangement imposes a penalty on a contractor for cost overruns and failure to complete the project on time. With a guaranteed maximum price contract, amounts below the maximum are typically shared between the owner and the contractor, while the contractor is responsible for costs above the maximum. So that we can say that it might be lead to the economic growth of the short run only.

C) Effect of printing new money on the economy:

Printing money creates a sense of nervousness amongst both economists and the general public.

If a government prints money faster than the growth of real output it reduces the value of money and this invariably causes inflation. Governments often resort to printing money when they cannot finance their borrowing by selling bonds. This hyperinflation can be extremely damaging to an economy.so printing a new currency will only lead to short-run growth in the economy

At last, we can say option (A) is correct because that will only lead to economic growth in the long run because learning will always pay you more in the future.