The GDP was trail blazed by Simon Kuznets in the early 1930’s in response to the Great Depression. It was thought that there wasn’t enough coherent information out there on national accounts. GDP became a guide for policy makers to confront economic issues and to create more prosperous nations. The belief that growth of GDP is vital indicator of the well-being of a country is extremely flawed. Even the creator of the measurement Kuznets recognized this "Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term.
As an economic advisor to the leadership of Bartvavia, I would not recommend attempting to adopt an expansionist fiscal policy aimed at reducing the already low unemployment. The reasons are: any reduction will only be short-run and not long-run, the interest rate will likely remain higher when unemployment returns to its natural rate and there are risks that the policy will only raise inflation which if uncontrolled can lead to stagflation and a recession. All these are because of the inverse relationship between unemployment and inflation.
Has the Fed lowered long-term US growth expectations? Lacklustre Productivity Produces Stagnant Economy? I have periodically commented on the view held in some circles that US potential GDP growth has stagnated, due to a combination of real and monetary factors. The important real factor is productivity, because it is crucial in linking economic growth to employment. In the UK, for example, productivity growth since the Great Recession has been appalling, but it helps to explain the faster-than-expected declines in unemployment, as well as the below-par recovery in corporate profitability.
Creating the biggest middle class, wages increased, workers bought more, companies hired more, the tax revenues increased, the government invested more, and workers were better educated. Even though education plays a big role in our economy, America seems to be making it harder to get a good education. 41 states started to cut spending on higher education making tuition and fees raise. The colleges need to make money and the states cutting spending just made it harder on the people. Inequality is definitely linked to education and is one of the reasons there’s such an enormous gap.
The increase of income inequality in recent decades is contradicted with the prediction of Kuznets (1955) that income inequality would be declined if the countries have reached the high level of economic performance and industrialization. Under the economic view, income inequality is understood as the situation in which income is distributed differently across population (IMF 2014). The differences in income distribution can effect directly to both economic growth and poverty reduction strategies of the countries (Jihène & Ghazi 2013). Therefore, causes of income inequality are still the concern of many scholars. There are many reasons that make income inequality become greater such as individual talent, changing in household structure, aging, inequality in accessing social services, corruption (Biewen & Juhasz 2010; Blanchflower & Slaughter 1999; Garvy 1952; Ragayah 2008).
However, the relationship between population growth and economic development of a country could be considered as negative if the increase of population is become an obstacle to the country’s economic development. This is because the faster the population growth, the greater the dependency burden. In other words, the segment of population which is considered economically unproductive included children and the elderly, expands along with the population growth. According to Kelly and Schmidt (1996), this negative view could be proved by Thomas Malthus as he raised warning about the danger of over-population in his “Pessimism about the economic impacts of population” over two centuries ago and thus conquered the thinking of population analysts.
Further more the government will have to abide by it's own legislation, and increase wages in the public sector. Overall government spending will increase. In conclusion the NMW is not ideal for the UK economy. It has had limited success in reducing unemployment however if it was at a higher level, it could prove highly detrimental to business and consumers.. Inflation rates have shown little change as well as long-term unemployment figures. Most importantly is the fact that the people that the NMW aims to help will be most negatively affected if we are to believe classical economics.
Expansionary monetary policy can only be effective if wages and prices are less than fully flexible and will be more effective the more flexible the exchange rate. The essential channel is the real depreciation of the exchange rate that serves to create employment, at least for a while. Similarly, exchange depreciation can only be effective if money wages and prices are unresponsive. Policy can be effective only if PPP fails to hold. Macroeconomic theory goes increasingly in the direction of information, contracting, and pricing models to explore what is the basis of PPP failure and to determine the resulting extent and persistence of policy effects.PPP disparities are relevant for the exchange rate choice between
This is due to the “spill over” of unemployment and lack of investments of countries not enforcing said polices. (Praet, 2105) When looking at the long-run growth of an economy, fixed wages has been proved to be negative overall. Fixed wages in an economic downturn leads to a higher rate of unemployment. (Praet,
The welfare system pushes up taxes and is often inefficient, but also creates a ‘culture of dependency’ by taking away people’s initiative and desire to better themselves. It is also blamed for family break-ups as women do not need to depend on men as breadwinners, and is seen as violating property rights because it involves compulsory redistribution of wealth. Although up until the 1960s conservative governments both in the UK and elsewhere supported paternalistic, one-nation principles, since the 1970s New Right ideas have become much more prominent, and therefore libertarian ideas within conservatism, particularly in economic terms, are more significant in modern conservatism.