Economic Growth Theories - Boosting Growth - How can we grow more?

Governments like economic growth. It makes the people in the country better off (generally) and if they are better off they are hopefully happier. If they are happier they are more likely to vote for you! Because of this, many policies will be aimed at attempting to generate a high, steady rate of economic growth. Governments don't want to let growth get out of hand because that will cause other problems, so they aim for steady long-term growth. Generally they fail to achieve this, so what policies can they use?

The policies to boost growth split into two types:

1. Demand-side policies
2. Supply-side policies

Demand-side policies

To boost the level of aggregate demand and therefore growth, the government needs to use reflationary policies. These are policies that help to generate more demand. They include:

• Cutting tax rates to boost people's disposable income
• Increasing the level of government expenditure
• Cutting interest rates to encourage more borrowing and spending

Supply-side policies

These are policies that aim to boost the potential for the economy to grow - in other words to supply more. They are policies that should make the economy more productive and more responsive to change. Examples include:

1. Cutting tax rates - this gives people the incentive to work harder and be more productive
2. Cutting benefits - this gives the unemployed a bigger incentive to find a job; a harsh policy (but a fair one???).
3. Promoting education and training - this should make the workforce more skilled and therefore more productive.
4. Promoting research and development (R & D) - spending on R & D will help find new more efficient ways to produce and should lead to better and more varied products.
5. Promoting mobility - if the economy is to be as flexible as possible, people need to retrain where necessary and they need to move to where the jobs are. The government has to help encourage this.

Try thinking of policies it could actually use to achieve these goals.