Question

1. Review the literature on economic growth and provide a summary of how:

a) Trade affects economic growth

b) Government expenditure affects economic growth

Note: The answers you provide to each of these sub-questions should not be more than 15 sentences. Also note that because this is a literature review you must cite credible sources

Answer 1

a) Trade affects Economic growth:

Goods and service exchange in between different countries is known as international trade. This trade leads to a world economy where supply, demand and price will be impacted by events of globe. The total of imports as well as exports will be accommodated in the nation's current account in the balance of payments. Through international trade African countries gets a chance in order to take part in the global economy and making development in their economic field, eradication of poverty, making job availability etc. Africa's relationship of trade with US is a very keen factor for its economic growth. International trade helps to hike the production of a nation. Some countries may have limited home market. In such cases they need to sell their product in another countries. Such foreign trade trigger business person for rising their investment in a business for manufacturing more goods. International trade helps in the optimum utilization of natural resources. If a country incur heavy cost for producing a product in the native state, importing such goods at a lower cost will be suitable.

b) Government Expenditure affects economic growth:

As the Government reduces imposing of tax, income of the economy rises. This leads to more demand spending as well as a rise in GDP. In order to increase growth and prohibit unemployment, Government may reduce the levying of tax and the expending amount remains constant, or rise the amount of spending, by keeping levy of tax constantly. When the economy face a breakdown in finance matters, Government normally rise its expenditure amount in order to increase economic development. This will help to keep the aggregate demand unchanged. It will form a multiplier effect. During recession, private sector savings will rise due to the low expending by the consumers. Hence Government expenditure may not create a good impact, which means tax increasing will not decrease the expending. If the economy is all set, then only this idea will work.