How does the minimum wage affect aggregate demand/aggregate supply and macroeconomic factors such as inflation, unemployment and economic growth? A minimum wage is the statutory minimum wage that employers can pay per hour. In 2019, the UK minimum wage was set at £8.21 an hour for workers over 25. In the US, the federal min …
Economic growth is an increase in national output/income (higher real GDP). There are two main aspects of economic growth: Aggregate demand (AD) (consumer spending, investment levels, government spending, exports-imports) Aggregate supply (AS) (Productive capacity, the efficiency of economy, labour productivity) To increase economic growth We need to see a rise in demand and/or an increase …
Economic growth means an increase in real GDP – this leads to higher output and higher average incomes. Governments often try to increase the growth rate because it will have various advantages. These include Benefits of economic growth Increased consumption. Firstly, higher GDP implies the economy is producing more goods and services and therefore consumers …
Readers Question: Given the widely varying fiscal policies of countries, both left and right, how come their growth rates over the long term are so close? source: World Bank To some extent growth rates are close; though it also depends which data and countries you use. However, from a very broad perspective, growth rates do …
Readers Question: Does the Rahn Curve support the empirical evidence? If not, why not? Can you prove that there is a relationship between the level of Government Spending and GDP growth? The Rahn Curve suggests that there is an optimal level of government spending which maximises the rate of economic growth. Initially, higher government spending …
What do we mean by balanced economic growth? Also, is it important for an economy to promote a balanced approach to growth? A balanced economy suggests that economic growth is sustainable in the long-term, and the economy is also growing across different sectors – and not focused on one particular industry or area. A balanced …
Readers Question: What is the impact of persistent national debt on economic growth? Source: IMF (2012) In summary, there is no obvious link between national (public sector) debt and levels of economic growth. Both UK and US finished the Second World War with high levels of national debt – but this did not prevent rapid …
Readers Question: What is the relationship between inflation & economic growth? If economic growth is caused by aggregate demand (AD) increasing faster than productive capacity (LRAS) – if economic growth is above the ‘long-run trend rate‘ then economic growth is likely to cause inflation. If economic growth is caused by increased productivity (LRAS), then the …