Question

1) What are the key determinants of economic growth? Discuss some public policy initiatives the US government may pursue to boost the economic growth rate of the US economy.

Answer 1

Following are some determinants of economic growth:

Consumer price index: Consumer price index or CPI measures the changes in the goods and services that are consumed by the people(or consumers).When there is an increase in CPI then there will be inflation and if the CPI is low then there will be deflation in the economy.

Gross domestic product: Gross Domestic Product or GDP measures the monetary value of all the finished goods and services in an economy. The higher the GDP, the faster the economy is growing.

Employment indicators: Employment indicators, such as labor force, unemployment rate estimate the number of people employed and the benefits they are providing to the economy.

National income: The more the national income, the more will be the economic growth as there will be more income in the economy for distribution.

Producer price index: Producer price index or PPI measures changes in the prices of goods and services that are received by the producers. Higher PPI means high prices which means that producers and manufacturers will receive more profit.

POLICIES FOR ECONOMIC GROWTH

Following are the policies that can be used for economic growth by the US government:

TAX CUTS AND TAX REBATES: Tax cuts and tax rebates can be used to increase or boost the flow of money for consumers. Consumers use their money for investment purposes and if they have more money supply then they invest more which increases the cash flows and profits for various businesses and help them to expand and increase the productivity. This contributes to the growth of the economy.

INFRASTRUCTURE SPENDING: When the local, state or federal government spends the revenue on infrastructure development like roads buildings etc. then they are considered as infrastructure spending. This enables some businesses to increase their productivity by allowing to work efficiently.

DEREGULATION: Deregulation means relaxation of some rules and laws imposed on industries and businesses. These relaxation allows the firms and industries to operate and grow to their full capabilities. This may increase the GDP growth of the economy.