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9 July, 08:02

How is "economic growth" measured? List and describe three ways a government could promote long-term economic growth. In what way is a college degree a form of capital? Explain how higher saving leads to a higher standard of living. What might deter a policymaker from trying to raise the rate of saving? Why would the elimination of a trade restriction, such as a tariff, lead to more rapid economic growth? How does the rate of population growth influence the level of GDP per person? What political and legal failures can impede a country's economic growth rate? Why has China's economic growth rate risen dramatically over the last 35 years? (Name at least one cause.) Which parts of the world have the highest and lowest GDP/capita? What special challenges (name at least one) do the least developed countries have for achieving economic growth?

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  1. 9 July, 08:22
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    How is "economic growth" measured?

    Economic growth is measured using the GDP growth rate. The formula is:

    GDP Growth Rate = GDP Year 2 - GDP Year 1 / GDP Year 1

    List and describe three ways a government could promote long-term economic growth:

    Increasing government spending in infraestructure - This promotes employment, and in the long-run, economic growth because it increases physical capital. Tax cuts - the government can promote spending, saving, and investment, by cutting taxes that people or corporations pay. Deregulation - deregulating industries can promote investment and growth. For example, the government could relax zoning laws in some cities to foster construction.

    In what way is a college degree a form of capital?

    A college degree is a form of human capital. People who complete higher-education are more productive and earn higher wages on average than people who do not.

    Explain how higher saving leads to a higher standard of living.

    Higher saving means that less disposable income (in the case of private saving), or tax revenue (in the case of public saving) is used for consumption, and is instead invested. Investment leads to capital growth, and capital growth ultimately results in more economic growth.

    What might deter a policymaker from trying to raise the rate of saving?

    High rates of consumption tend to produce more immediate effects on economic growth than high rates of investment. If the politician is interested in showing short-term results, he might be inclined to promote more consumption and less saving.

    Why would the elimination of a trade restriction, such as a tariff, lead to more rapid economic growth?

    Trade liberalization promotes growth because it allows countries to specialize in the production of goods and service that they have a comparative advantage to produce.

    How does the rate of population growth influence the level of GDP per person?

    If population growth is higher than GDP growth, GDP per person will fall, and if population growth is lower than GDP growth, GDP per person will rise.

    What political and legal failures can impede a country's economic growth rate?

    War, political instability, lack of an independent judiciary to enforce property rights, macroeconomic instability, high inflation or hyperinflation.

    Why has China's economic growth rate risen dramatically over the last 35 years?

    China has liberalized the economy ever since the death of Mao ZeDong. This has allowed China to become one of the most important manufacturing center in the world, becoming an export-oriented economy.

    Which parts of the world have the highest and lowest GDP/capita?

    Western Europe, North America, the Gulf Countries (Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman), Japan, South Korea, Taiwan, Hong Kong (autonomous region within China), Singapore, Australia and New Zealand.

    What special challenges (name at least one) do the least developed countries have for achieving economic growth?

    Enforcing property rights. Many of the least developed countries are dictatorships, where the judicial branch is not independent and rules arbitrarily. People can have their property expropiated virtually at any time, either by legal or illegal means, or even by violence. If people do not feel that their property is safe, they are less likely to invest, causing economic stagnation all over the economy.
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