Question

Define Economic growth? What are the factors that influence economic growth? What the benefits and the determinants of economics growth? What are the government policies to speed economic growth?

Answer 1

Step 1- Economic growth:
An increase in the capacity of the economy of producing goods and services in comparison to one period to another time is known as economic growth. Nominal or real terms are used to measure economic growth, the latter of it is adjusted for inflation.

Step 2- Factors influencing economic growth:
i). Natural resources- The economic growth is boosted by the discovery of more natural resources like oil or mineral deposits. Land, water, forest, and natural gas are other resources.
ii). Physical capital or infrastructure- The cost of economic activity is lowered by increasing investment in physical capital like factories, machinery, and roads.
iii). Population or labor- An increase in the availability of workers or employees means a higher workforce. A large population will lead to high unemployment.
iv). Human capital- The quality of the labor force can be improved by increasing investment in human capital, it will cause improvement in skills, abilities, and training. The skilled labor force is more productive since it has a significant effect on growth.
v). Technology- Technological improvement leads to an increase in productivity with the same level of labor which accelerates growth and development. Technology leads to sustained long-run growth.

Step 3: Benefits and determinants of economic growth:
i). Benefits -
Higher employment- Firms having higher output tend to employ more workers which create more employment.
Improved business confidence- There is a positive impact of economic growth on the profits of the company and business confidence.
Improved living standards- Better living standards and low poverty rates lead to growth.
Tax revenue- A higher tax revenue is created by economic growth which provides the government with extra money to finance spending projects.
Higher investment- Higher investment level is achieved by higher consumer demands.

ii). Determinants of economic growth:
The four major determinants of economic growth are human resources, natural resources, capital formation, and technology. Each determinant has its own importance.

Step 4: Government policies promoting economic growth :
i). Monetary policy - It changes interest rates and affects the money supply. The rates of interest are lowered and the supply of money is increased by the government to increase spending in the economy and encouraging economic growth. If there are too much growth and inflation then interest rates and supply of money are lowered by the government to discourage spending.
ii). Fiscal policy- Change in government spending and tax influences aggregate demand. Aggregate demand in the economy is increased. The government increases the spending of government and lower taxes. In case, if the government wants to reduce spending of government and increasing taxation.