Economic Policy Recommendation
The economy has many parties that ensure its existence, namely suppliers and consumers who deal in the exchange for goods and services, as well as factors of production that ensure continued supply of goods and services; capital and labor. A problem in an economy arises when one of the factors that determine the production is not in its correct form. The demand for goods and services depends on human wants. These are unlimited and the satisfaction of one leads to the call for another. A failure to satisfy human wants takes place either due to the increased demand or decrease in supply. Problems of the economy include the allocation of resources, problem of the full utilization of a resource and the problem of economic growth. Economic growth is a problem in many world economies.
The Problem of Slow Economic Growth
Economic growth is the increase in the productivity of an economy. Living standards of people in a particular economy depend on how the latter is performing. If goods and services in an economy are adequate to meet the demands of their consumers, then the economy is said to have grown. In a grown economy, prices for products are affordable and have stabilized, while in a growing economy, prices for products fluctuate.
Various causes can hamper the economic growth. It all emanates from problems with other sectors of the economy. Political instability, a decrease in factors of production, such as labor force and capital, government regulations, natural disasters and a fall in the national currency in the world stock exchange markets.
Natural disasters, such as floods, earthquakes, tsunamis and global warming, lead to the destruction of living matter and property. Government funds are directed towards relocating citizens in such areas instead of challenging it to finance developmental projects. This retards the growth of the economy. Political instabilities like civil wars lead to emigration of citizens from one country to another to seek refuge. This reduces labor force, hence decreasing the agricultural production; therefore, the potential of the economy to grow slows. If the government laws are considerably strict to an extent they discourage the production of commodities in the industrial and agricultural sector, investors shy away from such economies and seek others, whose rules and regulations regarding operations are a bit lenient.
Economic growth is measured in terms of increase in the gross domestic product over a given period of time. Examples of economies which have grown over the past decade smoothly include the US economy, as well as Chinese, Japanese, German and French economies.
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The Impact of Slow Economic Growth on Society
This is looked at from different perspectives, including the impact on the government, business firms, political relations with other countries and the effect on the final consumers of commodities, buyers.
The consumers of commodities suffer more when the economy remains stagnant or grows at a very slow rate. From time to time, the human wants keep increasing in number and in form. With the advent of technology, for example, the need for computers and other electronic devices has risen greatly. The supply of such products should therefore keep pace with its demand. However, in the case, where the economy is growing really slow, these commodities tend to be insufficient in meeting the customers demands. Therefore, the living standard of the population goes down.
In terms of the business firms, their main aim is to make profit through the sale of their goods and services. Firms incur production costs, purchase of equipment, electric bills, payment of salaries, taxes and so on. For firms to realize a good profit margin, they need to sell their products in bulk. However, in a situation, where the economy is underperforming, there is a reduced amount of products manufactured, hence sales go real low. This reduces profit margins to a minimum value. Investors look for economies which are growing quickly before they decide on how much they should invest. They therefore tend to shy away from economies which are growing very slowly.
The government also faces the impact of a slow economic growth. For the government to run its operations smoothly, it has to generate continuous revenue from various sources. One of the sources is imposing taxes on businesses within its economy. This, however, increases the overhead costs of production, while on the other hand, it depends heavily on the production firms. This makes some of the production firms to close down or relocate their operations to other areas, taking into consideration the amount of revenues available for the government to collect. Its administrative roles therefore may not be performed properly.
Political relationships between the developed countries and the less developed ones are also affected by the difference in their economic growth. The developed countries have high-rate growing economies in comparison with the less developed ones. They, therefore, tend to improve on their ties with the less developed countries. This is for them to create opportunities for their investors to venture into the recipient countrys economy. On the other hand, the less developed countries benefit from the political support of governments in place. As a result, the economy of the less developed countries begins to rise.
Economic Policy Solution to the Problem of Slow Economic Growth
There are a number of solutions to this economic problem. It all depends on the major areas of the economy. Most economies depend solely on the agricultural production; others are industrial-based, a good example being the Japanese economy. All in all, reducing the costs of production is the key policy. This includes: costs of farm inputs like fertilizers, livestock inputs, herbicides and disease combating medications for livestock farmers; taxes, electric bills, employee salary margins for the industrial firms. These costs may be included in the government regulation policy and laws.
For agricultural based economies, the solution is to lower the costs of farm inputs and offer training to farmers on the best ways to improve their farm outputs. Lowering the cost of fertilizer, wages and other inputs helps farmers in managing their plantations. Qualities of products also go high to an extent that its demand increases internationally. The exports increase ultimately to high revenue for the government. The food security in such an economy also becomes assured. This leads to an improvement in the living standards of the population. Training farmers on the best farming methods results in the same way, including creating jobs for the trainers. All these lead to the improved way of living, as well as a growing economy.
For the growth of an economy that depends solely on the industrial production, yet the pace is still slow, reducing the overhead costs of production imposed on production firms is the ultimate solution. This can be achieved by lowering taxes and costs of raw materials. This enables business production firms to increase their product output level. Therefore, the gross domestic product value, a measure of economic performance, raises, hence being a sign of the growth in the economy. Product prices also fall, making it affordable for the population. This leads to the improved living standards, an indirect indicator of economic growth.
Another solution to the slow economic growth is to develop strong relations with countries that have well performing economies. This leads to an influx of investors from the developed countries, who seek to take advantage of the new market opportunities. In doing so, they increase the amount and quality of products in the less developed countries, hence lead to a gradual rise in the growth of the economy. Additionally, the less developed countries would tend to imitate strategies used by the developed countries in improving their economies.
Analysis of the Theory behind the Solution Policy
Solving a problem of the slow growth in the economy depends on the current value of the gross domestic product and the current living standards of the population. The solution should be in such a way that it leads to an increase in both parameters.
By reducing the costs of inputs, whether in the industry for the industrial based economies or in the agricultural sector for the agricultural based economies, the overall production costs go low. This leads to an increase in the quantity of products produced. If measured using the monetary value, the increased gross domestic product figures are registered. At the consumer level, the living standard, which is an indirect measure of the growth in the economy, is determined by their ability to afford the variety of products available in the economy. This relies on the producers costs. If the costs of production are too high, then prices for commodities are set high so that firms can still make a good profit margin to enable their continued existence in the economy. If this is so, then consumers may not be able to fully afford the products leading to a low measure of economic growth. The inverse holds in case the costs of production of firms is low, in which consumers would improve their living standards because they are in a position to acquire what the economy offers for the consumption.
The policy adopted above has effects on the government, business firms and the final consumers. By lowering the costs of production, the government may not gain enough revenue from taxation and other related charges in the meantime; however, over a long period, when there is a certain growth in the economy, the revenue returns also rise from the increased export. Furthermore, businesses are affected positively in terms of reducing the overhead costs, which makes businesses spend their funds on financing other projects and expanding their areas of operation. In addition, consumers benefit from this policy; they can afford more goods and services if their prices are lowered, resulting in the improvement of their way of living.
How the Proposed Policy would Solve the Problem of Slow Economic Growth
The policy of reducing production costs is a perfect solution to the problem of slow economic growth. An economy will be growing if the amount of products, including their quality, is increasing in the market. Producers are the farmers in agricultural based economies and industrial firms in industrialized economies. Both require inputs, which they acquire at a cost. If this policy is adopted, costs of such inputs are placed on the lower margin, hence producers, who are the main suppliers of goods in the economy, can increase their produce. A gradual increase in the amount of products in the market is reflected as a gradual growth in the economy.