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Running Head: Policies that Impact Economic Growth.
Student’s Name:
Course Title:
Date of Submission:
Running Head: Policies that Impact Economic Growth.
Economic growth refers to the increase in a country’s productive capacity which is usually
measured by comparing gross national product in a year with the GNP of the previous year.
Advancement in technology and increase in levels of literacy are some of factors that are
considered to increase economic growth. The government uses some policies in order to impact
economic growth and productivity. The growth of an economy is not only indicated by the
increase in the productive capacity but also indicated by the improvement in the quality of life to
the people of the same economy (John, 2012).
Those policies that the government tend to set aside in order to impact economic growth and
productivity involve an increase in aggregate demand or aggregate supply. The demand side
policies are usually during the times of economic stagnation which is known as recession
whereas the supply side policies are generally important for determining long run growth in
Under the demand side policies we have the monetary policy and fiscal policy. Monetary
policy is the most crucial tool for impacting economic growth. The government can cut down the
interest rates in order to increase the aggregate demand. When the interest rates are low, they
tend to lower the cost of borrowing encourages consumers to invest and spend. In addition to
that, when the interest rates are low, they reduce the incentive used to save and hence putting
every consumer in a position to spend. These low interest rates lower interest payments hence
increasing consumer’s disposable income. When the consumers’ income increases this leads to
improved standards of living and hence increasing economic growth in whole.
The second policy under demand side policies is the fiscal policy. The government can boost
demand by increasing government spending and cutting tax. When the income tax is low, this the
disposable income is increased and this encourages consumers to spend so much. When the
Running Head: Policies that Impact Economic Growth.
government highly spends, this leads to creation of jobs and provision of economic stimulus.
When the government cuts down taxes and increases its spending it in return increases
consumption (Fereidoon, 2013). With increased consumption, the firms are producing more and
therefore need workers hence creating employment. When people get jobs their income increases
and as a result this leads to increased economic growth.
The other strategy that increases economic growth is by application of supply side policies.
These supply side policies tend to increase efficiency and productivity of the economy. Under
these supply side policies we have lower income which usually boost the incentive to work and
lead to an increase in labor supply. When the taxes are very high, this makes people to work
tirelessly and over long hours in order to achieve their target income. Lower income tax acts as
an incentive for those workers who are unemployed and encourages them so much to join the
labor market and those who are already employed are encouraged to work harder. Lower tax also
acts as an incentive to new entrepreneurs and this encourages them to start up new businesses.
Therefore when all these are incorporated together, they lead to an increase in national output
which generally increases economic growth.
The government can focus to offer better education and training so as to improve skills. When
the government highly spends on education and training, labor productivity is likely improved.
The government can either spend directly its money or in form of incentives to encourage private
sectors to join the market. For the government to ensure that the best skills and training is offered
to the people, it may set standards to monitor the quality of teaching (Jane, 2014). These skills
equips the unemployed with new skills which enable them to find jobs as per their qualifications.
These therefore increase economic growth greatly. All these items have greatly enhanced my
quality of life and the following are the recommendations that will improve the policies. The
Running Head: Policies that Impact Economic Growth.
government should reduce the income tax, offer education and training which is fair and
affordable to all people.
Running Head: Policies that Impact Economic Growth.
John, T (2012): Government Policies and the Delayed Economic Recovery. Hoover Institution
Press Publishers.
Fereidoon, S (2013): Energy Efficiency. Towards the End of Demand Growth. Academic Press
Jane, G (2014): Tax Rates and Economic Growth. Congressional Research Service Publishers.