Discussion Questions: Governments Policies Effects on the Economic

Q#1 How governments can use supply side policies to facilitate economic growth

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Supply side policies are strategies laid out by governments to increase the productivity of the economy through maximum utilization of all the factors of production. The governments use incentives that improve the productive capacities of the factors of production with the aim of stimulating economic growth (Arnold 2010). A government that wishes to facilitate economic growth can use different approaches and the supply side policies to boost the economic growth.

The government can use supply side policies to promote economic growth through the improvement of labor markets (Arnold 2010). The labor market has a significant influence on the production capacity of the economic because it determines the supply of skilled personnel. In an economy where there is sufficient supply of trained personnel, the economy is likely to be productive than an economy where the supply of skilled labor is low. Trained staff is productive than unskilled or semi-skilled personnel, and thus the amount of trained personnel that can be acquired from the labor markets affects the overall performance of a given economy (Cook, Healey & Healey 2011). A government can lay out strategies meant to improve the labor markets such as passing policies that increase the level of competition in the labor markets. The competition can be enhanced by increasing the number of skilled personnel supplied to the labor markets from the training institutions. Through a constant supply of trained personnel rigidities in the labor markets will be eliminated and create an environment where people competitive for employment opportunities. The increased competition in the job market will help ensure that only the most suitable candidates are employed in positions that suit their skills, and this gives a guarantee of high productivity (Cook, Healey & Healey 2011).

The labor market strategies can help the governments to boost the level of employment in the economy. Unemployment is a significant barrier to economic growth and thus coming up with strategies that address the issue of unemployment is a sure way of boosting economic growth. Protection of employment lowers economic growth because it increases unemployment across the economy (Cook, Healey & Healey 2011). Governments can stimulate economic growth by passing policies that prohibit job protection. One of the hindering factors to economic growth is labor immobility. Labor immobility is caused by rigid structures in the economy that prevent free movement of human personnel across different sectors of the economy. Labor mobility helps to ensure that there is no structural unemployment in the economy has people can easily transfer their skills from one sector of the economy to the other. Governments can facilitate economic growth by creating an environment for labor mobility. Labor is a very significant factor of production, and its rigidity has long term effects on the performance of the economy (Cook, Healey & Healey 2011). This means that flexible supply of labor boosts economic growth because it increases work efficiency and the supply-side performance.

In an economy where the employees have great control over issues that affect them in the workplace such as the work conditions and the remunerations, the economy might experience low productivity and poor performance. Uncontrolled workers union have a tendency of calling for workers strikes to demand improved pay or better working conditions. Frequent workers unrests and industrial strikes lower economic growth (Cook, Healey & Healey 2011). Governments can boost economy growth by having control over workers union to prevent them from disrupting the labor markets through occasional strikes. For instance, the governments can stimulate economic growth by limiting workers unions ability to call for industrial strikes by declaring workers strikes as illegal.

The education system of any given economy plays a significant role in determining the supply of skilled personnel to the labor markets (Cook, Healey & Healey 2011). Education system affects the level of employment in the economy, and this has an effect on the performance of a given economy. The school system determines whether the labor market has prerequisite skills needed to be employed in certain sectors. Some education systems produce graduates who are either not fit for the labor markets or are semi-skilled, and this affects their overall performance. The governments can improve the economic growth by passing out policies that improve the education system.

The school system should have the capacity to offer to the learners the skills needed in the job market. If an education system does not meet the needs of the job market, there will be increased unemployment in the economy because after going through the school system people will lack sufficient skills required in the job market. The governments can invest in the school system directly or indirectly to improve the labor productivity which will, in turn, improve the productivity of the economy. Some governments spend in the education system by setting aside funds for the school system while others opt to offer incentives that encourage stakeholders in the education sector to provide education that meets the requirements of the labor market.

Governments get their income for investing in the economy mainly from taxes paid by individuals and corporate entities within the economy. The levels of taxation or the form of tax used in a given economy affect the output of the factors of production (Cook, Healey & Healey 2011). As pointed earlier, the factors of production play a significant role in determining the level of output in the economy and thus regulating the level of taxation affects the benefits derived from the factors of production. Governments can use the tax system to stimulate maximum utilization of the factors of production which in turn will boost the economic growth. The ideal tax system that can help boost the economic growth is one that does not alter the demand for the factors of production but encourages factor output (Cook, Healey & Healey 2011). Supply side policies mainly support tax systems that do not have adverse effects on all players in the economy. Governments can use the supply side policies to boost economic growth by lowering direct taxes. Direct taxes often increase the costs of factors of production such as land and capital and this, in turn, discourages people from investing in the factors of production. The governments can boost the economic growth by lowering the direct taxes which in turn will reduce the costs of investing in the factors of production. For instance, high direct taxes in the capital market mean that the financial institutions charge high-interest rates and this discourages individuals and corporate entities from taking loans from the financial institutions (Cook, Healey & Healey 2011). Lack of ease of access to capital means that there is a limited investment in the economy and this lowers the economic performance.

Income and corporate taxes play a significant role in determining the performance of the economy. The two types of taxes mentioned above determined the level of employment and entrepreneurial startups in the economy, and this affects the growth of the economy. The revenue determines the rate at which unemployed people enter the labor market. High-income tax discourages unemployed people from joining the labor market because a big percentage of their earnings go to the government and they are left with little for their savings and investments (Cook, Healey & Healey 2011). The high-income tax imposed on the working people mean that they do not have money to save and invest in the factors of production that can boost economic growth. On the other low-income tax encourages unemployed people to enter the labor market because they are assured of income that can help them save and invest in the economy and boost economic growth (Arnold 2010). Corporate tax determines the level of entrepreneurial starts in the economy. This means that the business tax can either motivate people to invest in the economy or can also discourage them from investing in the economy. For instance, high corporate tax discourages entrepreneurs from investing because they will derive fewer benefits from their ventures. On the other hand, small corporate tax encourages entrepreneurs to invest in the economy because they are assured of benefiting from their investments.

In a nutshell, the economy growth is primarily influenced by the factors of production. The governments can use the supply side policies to facilitate economic growth by promoting the efficient utilization and availability of the factors of production. Through ideal systems that avail all the factors of production needed to boost economic growth, the government encourages economic growth. All the factors of production are imperative in economic growth, and thus the governments have the mandate of ensuring that the factors of production are available in the economy to be used as tools for boosting economic growth. Economic growth is often hindered by factors such as inflation, unemployment, and other factors adverse economic conditions (Arnold 2010). All the factors that impede economic growth can be eliminated through favorable supply-side policies.

Q#2 Why and how governments can use fiscal and monetary policy to temporarily slow economies

Fiscal and monetary policies determine the level of economic activity in a given economy. Through the fiscal and monetary policies, governments establish the standard of monetary supply in the economy as well the levels of inflation, interest rates, taxes and employment (D'Souza 2008). Rapid economic growth can have an adverse effect on a given economy and such governments sometimes use fiscal and monetary policies to slow the economic growth temporarily. Rapid economic growth can lead to depletion of the capital accounts of a given economy and thus have long-term effects on the stability of the economy. It is, therefore, prudent for governments to check the economic growth to avoid rapid growth that would later result in adverse effects such as hyper-inflation (D'Souza 2008). The increase of any given economy is determined by the level of economic activities in the economy which affect the aggregate supply and demand of goods and services in the economy.

Fiscal policies regulate the economic growth by controlling economic activities the economy. Money plays a significant role in determining the economic activities within the country because it determines whether people have or do not have the buying capacity (Arnold 2010). Through the fiscal policies, governments regulate the economic growth by influencing the expenditure of the people. The economic activities are restricted through policies such as tax systems that have a direct effect on investments on the factors of production. Governments implement different fiscal policies depending on the prevailing conditions of their economy. For instance, to lessen the burden of unemployment, the government can lower taxes to encourage entrepreneurial startups and investments in the economy that can help to address the problem of unemployment. On the contrary, during the inflation, the government can raise the taxes to reduce the expenditure to stabilize the economy and boost economic growth. Fiscal policies are mainly used to increase AD and help the economy grow after a recession that pulls the economy down (Arnold 2010). When the economy is growing rapidly, the fiscal policies are used to lower the AD and in a way increase recessionary gaps to temporarily slow the economic growth. Economic policies are often intentional...