IThe impact of high rate of growth on the nation
The economic growth rate normally provides insight into the magnitude and direction of growth for the economy. High growth rate strengthens fiscal conditions and overall size of a nation’s economy. A high growth rate increases the capital gross domestic product (GD)) and income. This implies virtuous circles of opportunity and prosperity for the nation including employment opportunities, emergence of entrepreneurs, advancement of human development and reduction in poverty levels
High rate of growth affect the power and influence of the nation’s government by increasing economic welfare, improve public finance and help to reduce unemployment all which are indicators of a healthy economy for any country. High rate of growth adds extra tax income for the nation’s government that means the government has more power to increase spending on infrastructural development and providing social amenities such as hospitals, sewerage etc. (Agarwal, 2017). For nations experiencing slower rates of growth, they lack the ability to handle unexpected economic changes such as recession and a downward drag on GDP
The nation’s living standards will be affected by a 5 % growth in the following ways improved resources for education, enable more consumption and spending on health care and increased tax revenues. Increase tax revenues for government enable more spending on public services such as education and health which improve quality of life, life expectancy.
For population 5 percent growth rate means increased population because of high birth rates and minimal mortality rates this is based on Malthusian model (Thuku, 2014). Growing population is key to an economy as it promotes technological change in an effort to meet high demands for good and services. Rising population means a large labor force and higher urban agglomeration (Thuku, 2014).
Given population growth the living standard such as quality education, health care, and social amenities will start gaining momentum at a growth of 5 percent.
Part 2
The concept of investment and net investment
Gross investment includes various investment goods such as used up equipment, building and machineries and also net additions stock of capital for the economy. On the other hand, net investment usually the amount spent on capital assets less depreciation. Net investment = Gross investment –depreciation
When the gross investment surpasses depreciation, production capacity expands and net investment is positive, the economy at the end of the year reflects more physical goods when compared to what it had at the beginning of the year. It is vice versa when the depreciation is more than gross investment, production capacity drops and net investment is negative.
An explanation how it is impossible for gross investment to be less than zero even though net investment can be positive, negative, or zero using real world examples.
Gross investment constitutes all investment made by a nation in one year. However, the country may not benefit from all of the resources invested in equipment and machines because some machines depreciate during the year. Therefore a net investment which is greater than 0 is an indication there is more capital goods. Example if U.S net private domestic investment was minus $20 billion in 2014, that does not mean the country produced no new capital good in 2014. It simply shows depreciation was higher than gross investment by $20 billion and therefor the economy had $20 billion during the year end.
Part 3
Why some countries today are much poorer than other countries
Economic growths of poorer countries is key to reducing the gap between developed economies and poor countries. According to Wolla (2017) economic growth rate variations between countries narrows down to differences in inputs i.e. differences in capital resources, productivity of labor, and factors of production. Higher productivity triggers faster economic growth which is key to alleviate poverty
Are the poor countries destined to always be poor than today’s wealthy countries?
No because reason being economic growth across new markets has been scorching over years. For instance China and India has maintained growth rates of more than 10% per year compared to U.S 1.7% in 2016 (The Economist, 2014). With this in mind it possible to have convergence with wealthy nations.
Part 4
How a financial crisis can lead to a recession
This can happen when the financial institutions creates too much money very fast thus pushing up price for instance house prices leading to speculation on financial markets. Whenever banks makes a loan that means new money is generated that could in the end result is huge debts in the economy. It is because of lending huge sums of money especially into the property markets that pushes up the prices of housing.
How major new invention can lead to an economic expansion
New invention means new jobs, a stimulated growth and fast growing industries. For instance, invention of mobile phone has led to a subscription of 6.8 billion user globally (Elana, 2013). The outcome has been increased competitiveness by leveraging the ability to share important information fast, spread accurate information in a timely money and creates efficiency on how information is shared in organizations. Again invention of cloud service such as Dropbox, Google drive means safe store of information as new businesses emerge and the demand for data storage grows