Engineering Economic Growth

How do we traditionally
measure economic success?
Macroeconomic Objectives

1. High/full employment
2. Price stability
3. Economic growth
4. Balance of payments stability
5. Redistribution of income
Macroeconomic Objectives

1. High Rates of Employment What tools could be used to

achieve this goal?
The level of employment where there
is no cyclical or demand-deficient
unemployment.

All available labour resources are

being used in the most economically
efficient way.
Macroeconomic Objectives

2. Price Stability What tools could be used to

achieve this goal?
The situation whereby the prices of
goods and services offered in the
marketplace change slowly.

Prolonged inflation and deflation can

both be damaging to an economy.
Macroeconomic Objectives

3. Economic Growth What tools could be used to

achieve this goal?
An increase in the value of goods and
services produced per person in the
population over a period of time.

Economic growth is measured using

real GDP data.
Macroeconomic Objectives

4. Balance of Payments Stability Can you suggest ideas of what

BOP is a record of all economic transactions
might influence the BOP?
between the residents of a country and the
rest of the world over a period of time.
Stability implies maintaining a balance in the
inflows and outflows of foreign currency.
Macroeconomic Objectives

5. Redistribution of Income What tools could be used to

achieve this goal?
The transfer of income and of wealth
(including physical property) from
some individuals to others by means
of some form of social mechanism.
The goal is to try and achieve some
level of equity with the distribution of
income.
Conflicting Macroeconomic
Objectives
Task (p5) What
happens if leakages in
the circular flow
diagram are greater
than injections?
Vice versa?
Aggregate Demand

As you watch this video

introduction to aggregate
demand, jot down some notes
on why AD is downward
sloping, the components of AD,
and what causes the AD curve
to shift to the right or to the left.
Aggregate Demand

Aggregate demand/GDP is the total

expenditure by households, firms,
government sector, and the foreign
sector on ALL final goods and services
in an economy at any given price level
in a given period of time.
Aggregate Demand
Average

The aggregate demand curve shows the

inverse relationship between the average
price level and real output (commonly
referred to as Real GDP).
APL
Aggregate Demand
Average

In constructing an aggregate demand

curve, we look at the demand from all
possible sectors within the economy.

APL
Aggregate Demand

Changes in the average price level

cause extensions or contractions on
the AD curve.
There is an inverse relationship
between average price level and
aggregate quantity demanded.
Aggregate Demand-What
shifts the AD curve?
Consumption (C) Investment (I)
Total spending by households (consumers) Total spending by firms, and includes the
on domestic goods and services. It includes addition of capital stock (man-made goods
spending on: used to produce other g/s) to the economy.
● Durable goods (cars, computers, bicycles)
● Non-durable goods (food, toilet paper) Net Exports (XN)
● Exports: domestic g/s bought by
foreigners (revenue flows into the country)
Government Spending (G)
Spending by all levels of government on ● Imports: g/s bought from foreign
things like healthcare, education, law and producers (revenue flows out of a country)
order, social security, transport, and so on. Net Exports = Exports - Imports (X-M)
Aggregate Demand

Non price factors (changes in

C, I, G and/or net exports)
shift AD left or right.
Increases in these
components shift the AD
curve right and decreases in
these shift AD left.
Aggregate Demand
Non-price factors

Consumption (C)

What changes consumption?

● A change in income
● Changes in interest rates
● Changes in wealth
● Changes in expectations/consumer
confidence
Aggregate Demand
Non-price factors

Consumption (C)

Example:
Consumption-
Increase Income- Increase income leads to increased C on g&s, therefore AD increases
(shifts right)
Decrease income- decreased income leads to decreased C on g&s, therefore AD
decreases (shifts left)
Aggregate Demand
Non-price factors

Investment (I)

What changes investment?

● Changes in interest rates
● Technological change
● Changes in expectations/business
confidence
Aggregate Demand
Non-price factors

Government Spending (G)

What changes government spending?
● Political situation (party policies)
● Economic situation (need for fiscal
stimulus)
● Spending on subsidies
● Spending to correct market failures
● Spending on public and merit goods
Aggregate Demand
Non-price factors

Net Exports (XN)

What changes net exports?

Exports
● Change in foreign incomes, relative price
levels, or exchange rates.

Imports
● Change in domestic incomes, relative
price levels, or exchange rates.
Increasing AD Decreasing AD

Increase real output Reduce Inflationary pressure

Create economic growth Improve sustainability
Reasons For Reduce unemployment
Increase income levels
Improves standards of living
Improve balance of payment if net exports causes
AD to increase.

Causes inflationary pressure Decreases real output

Negative externalities created Decreases economic growth
Reasons Against negatively impact sustainability/resource depletion- Increases unemployment
can impact the LR growth of the economy. Decreases in income levels
Depends on what is causing the growth if people Could cause deflation
are benefitting Could cause recessionary pressure
Aggregate Demand

Overall, AD can be represented as:

AD = C + I + G + XN
● An increase in any of the
components will cause a rightward /
outward shift in AD.
● A decrease in any of the
components will cause a leftward /
inward shift in AD.
Aggregate Supply

Aggregate supply is the total amount of ALL

final goods and services that all industries in
the economy will produce at any given price
level over a particular period of time.

There is a positive relationship between the

price level and the value of output that a
country’s industries will supply.
Aggregate Supply

As you watch this video

introduction to aggregate
supply, jot down some notes on
why AS is upward sloping, and
what causes the AS curve to
shift to the right or to the left.
Short-Run Aggregate
Supply

What is a change in Aggregate quantity

supplied?

A change in the price level results in a change

in the level of output and is shown as a
movement along the SRAS curve.

This is described as a change in quantity

supplied, or an extension or contraction along
the SRAS curve.
Aggregate Supply
Non-price factors

Supply-side shocks result from factors that cause

changes in the costs of production. Typical changes
in the costs of production include:
1. A change in wage rates
2. A change in the costs of raw materials, eg oil
3. A change in the price of imports
4. A change in government indirect taxes or
subsidies

An increase in costs will decrease the AS (shift left), and

a decrease in costs will increase the AS (shift right).
Short-Run vs Long-Run
Aggregate Supply
What does the long-run aggregate
supply (LRAS) represent?

- The LRAS represents the LR potential

output of the economy if all FOP’s are
fully utilized.
- The LRAS will be vertical at the
potential output
- This is also known as the Full
Employment Level of Output
Aggregate Supply-
Task
Real world application:
Answer the following questions with a partner:
Read the following articles: Singapore & UK
1. Define Aggregate supply.
2. List what factors that are causing rising costs for UK & Singapore firms respectively?
3. Using a SRAS diagram only, show the impact for both Singapore & the UK of rising
costs for firms?
4. Provide a explanation of why these changes are occurring and the impact on SRAS.
5. Extension: Using an AD and SRAS diagram together, can you show what impact the
rising cost for firms will have on Average price levels and output in the economies?
Macroeconomic Equilibrium
The economy will operate where
aggregate demand is equal to
aggregate supply.
AS

At GPL/APL1 and Y1, all the output

produced by the country’s producers
is consumed. There is no incentive for
producers to either increase output or
raise prices.
SR Macroeconomic Equilibrium
In the SR the economy can operate
below/above the potential output,
where aggregate demand is equal to
SRAS.

At PL1/APL1 and Y1, all the output

produced by the country’s producers
is consumed. There is no incentive for
producers to either increase output or
raise prices.
LR Macroeconomic Equilibrium
In the LR the economy can operate at the full
employment level of output, where
AD=SRAS=LRAS.

At PL1/APL1 and Y1, all the output produced

by the country’s producers is consumed. The
economy is operating at its potential output.
Macroeconomic Equilibrium
Complete on Page 13 of your workbook:
1. Suppose the government decides to reduce
income tax rates by 5%. What happens to the
following?
● Disposable income
● Consumer Spending
Graph the impact on Aggregate Demand.
2. Suppose the electricity prices across the country
begin to increase and impact all firms ?
● Costs of Production for firms?
Graph the impact on SRAS.
Conceptual Understandings

Why does the gov intervene to

manage the macroeconomy?
Why is it a challenge for the govt to
meet all of its macroeconomic
objectives?
Economic Growth
Economic growth refers to an
increase in the value of a nation’s
output (or income) over a period of
time.
It is measured as an increase in
Gross Domestic Product (GDP) over
time, and steady and sustainable
growth is one of an economy’s main
macroeconomic objectives.
Economic Growth

Let’s have a quick reminder of what

GDP is and then think about how we
measure and calculate it.

Watch the video and note down the

key points made about GDP - be
prepared to discuss.
Economic Growth
Economists tend to make two
adjustments to GDP to allow the
value of output produced to be
measured over time and between
countries of different size. They:
● Adjust for inflation
● Account for changes in the size of
a population
Economic Growth
Real GDP = Nominal GDP adjusted for inflation

Real GDP is measured using

prices from a base year, so that
the value of output from each
year can be compared in terms
of the base year prices.
Economic Growth

Gross National Product (GNP)

Gross national product is GDP + net
property income from abroad

If a Japanese MNC produces cars in

Singapore this production will be counted
towards SG GDP. But if the Japanese firm
sends $50m profits back to Japan - this
outflow of profit is subtracted from GNP. SG
does not benefit from this profit.
Economic Growth

Real GDP per capita

Real GDP .
No. People in Population

This calculation provides a number

that economists can use when
comparing countries which have
different sized populations.
Conceptual Understandings

How can Economists

use models to
represent the impact
of economic growth?
How do we use diagrams or models
to explain changes in economic
growth?

1.
Economic Growth
A growth in actual output can be
demonstrated on the Production
Possibilities Curve (PPC) as a
movement from A to B. This is also
called short-run growth.

This occurs when existing FOPs are

used more efficiently/when
unemployed resources are employed.
Economic Growth

A growth in potential output can be

demonstrated on the Production
Possibilities Curve (PPC) as a
movement from PPC1 to PPC2. This
is also called long-run growth.
Economic Growth
Increases in AD creates Economic
Growth.
- Short-Run Economic growth can also
be illustrated as a shift right in AD from
AD1 to AD2. Also known as, actual
growth.
- Real GDP increases from Y1 to Y2,
therefore economic growth occurs
- Any increase in the components of AD
cause AD to shift to the right.
AD= C+I+G+ (X-M)
Economic Growth
Increases in SRAS can create
Economic Growth
- Short-Run economic growth can also be
shown as a shift in SRAS.
- A decreases in a firm's SR Cost of
production (COP) can cause SRAS to
increase. For example, this can occur when
oil prices decrease.
- As SRAS increase to SRAS2, real GDP
increase from Y1 to Y2, therefore creating
SR growth
Economic Growth
Long-run Economic Growth is
caused by increases in LRAS.
- Long run economic growth can be shown
as a shift in LRAS when an economy
increases its potential or full employment
level of output.
- This occurs as a result of an improvement
in the quantity and quality of resources
(land, labour, capital, and enterprise) and
may come about through market forces, or
through government policies.
Economic Growth
Economic growth varies
over time and from
country to country. Also,
economies face periodic
fluctuations in economic
activity and growth rates.
What information does
this diagram provide?
Economic Growth
The Trade / Business Cycle
The trade cycle shows changes in a
nation’s level of economic activity over
time There are four main phases:

1. Growth/Expansion or Recovery
2. Peak
3. Contraction or Recession
4. Trough
Economic Growth
Expansion (recovery)
Expansion/recovery is the phase of the
business cycle when the economy moves
from a trough to a peak. It is a period
when the level of business activity surges
and gross domestic product (GDP) rises
until it reaches a peak.
Economic Growth
Peak (boom)
A peak is the highest point between the
end of an economic expansion and the
start of a contraction in a business cycle.
The peak of the cycle refers to the last
period before several key economic
indicators, such as employment and
economic growth, begin to fall.
Economic Growth
Contraction (recession)
Contraction occurs after the business
cycle peaks, but before it becomes a
trough. According to most economists, a
contraction (or recession) is said to occur
when a country's real GDP has declined
for two or more consecutive quarters.
Economic Growth

Trough (slump)
The lowest point in the
economic cycle. The trough
forms after a period of
contraction ends and before a
period of expansion begins.
Task: In country X, the annual value of GDP (in dollars) is recorded below. Calculate the percentage
changes in GDP over time. (page 19 of your workbook)
Year GDP % change-explain the change/stage of the trade cycle

1 10,000 NA NA

2 12,000 From yr 1-2:

3 14,000 From yr 2-3:

4 12,000 From yr 3-4:

5 12,000 From yr 4-5:

6 11,000 From yr 5-6:

7 9,000 From yr 6-7:

8 10,000 From yr 7-8:

9 11,500 From yr 8-9:

Economic Growth
Work with a partner for this research task and
use the linked Google Document. You and your
partner will be using Gapminder World/trading
economics to screenshot and copy GDP data
over time for the listed countries.
The first column in the chart is for percentage
change, and the second is for dollar value
change. Once finished with the chart, answer
the questions that follow in the doc linked
above.
Economic Growth
Why a Recession may come about:
1. Higher levels of unemployment
2. Higher interest rates - discouraging investment
and raising the incentive to save
3. Greater uncertainty in the economy
4. Lower rates of disposable income - fall in C
5. Lower levels of government spending
6. Decline in demand for exports
7. Lower levels of confidence - business and
consumer
Economic Growth
Follow-up Gapminder activity:
1) For the countries you have collected data on, select a
period of time where they experienced economic
growth & a recession.
2) Add 2 columns to your document & collect the
following data for each country: unemployment rate
changes, Inflation rate changes.
Exam Style Questions

1. Define Gross Domestic Product (GDP). (2)

2. Define recession. (2)
3. Explain why a recession is likely to reduce consumer spending. (2)
4. Identify the difference between economic growth and recession. (2)
5. Using a diagrams/s, explain the difference between short-run and long-run
economic growth. (4)
6. Using a diagram, explain the possible effects of faster internet speeds for
economic growth. (4)
How do we engineer economic
growth?

1. Domestic-Driven Economic Growth:

a. Demand-side Policies (Fiscal & Monetary policies)
b. Supply-side policies (Interventionist & Market-based
policies)

2. Export-Driven Economic Growth

How to we Engineer Economic
Growth Domestically?
1. Demand-side Policies
- Aimed at influencing the level of aggregate demand in the economy.

a) Fiscal Policy:
i) Use of Government spending
ii) Taxation- direct and indirect

b) Monetary Policy:
i) Control money supply
ii) Control the cost of borrowing- Interest rates
Fiscal
Policy
Fiscal Policy

Fiscal policy uses

taxation and government
spending to affect the
macroeconomy by
increasing or decreasing
AD.
Government Budget
Go to the iCivics website and try your hand at
an interactive game: The People’s Pie. When
prompted to click ‘Login’, ‘Register’, or ‘No
Thanks’, choose ‘No Thanks’. You will be
asked to make decisions on taxation, as well
as priorities for government spending.

See how well you do at maintaining

consumer satisfaction. Aim to spend no more
than 20 minutes.
Government Budget
The budget is an estimate of
government spending and revenue
(income) for the coming year.
The government Budget informs the
public about what the government
plans to spend its’ income received
on, and how that spending will be
funded.
Government Budget
Government funding is received
from:
1. Direct and indirect taxes
2. Sale of goods and services
3. Sale of state-owned assets
and enterprises (privatisation)
4. Borrowing from the public
(sale of bonds)
Government Budget
Current Expenditures
All payments other than for capital
assets, including on goods and
services, wages and salaries,
employer contributions, interest
payments, subsidies and transfers.
Government Budget
Transfer Payments
A payment made or income received in
which no goods or services are being
paid for, such as a benefit payment or
subsidy.
Government Budget
Budget Deficit
Gov’t spending > tax/other revenues

Government must borrow to finance the

deficit. This increases the national debt
and leads to higher interest payments on
servicing that debt.
Government Budget
Budget Surplus
Gov’t spending < tax revenues
and other receipts

A surplus can be used to reduce

government debt.
Government Budget
Balanced Budget
Gov’t spending = tax revenues and
other receipts

Neither a budget deficit nor a budget

surplus exists (the accounts "balance").
Government Budget
How a government acts in
relation to its spending and
taxation will have important
effects on the economy.
With a partner, find an example of a
country that has found itself with
serious problems due to unwise
budgeting decisions.
Fiscal Policy

Watch this crash course on Fiscal

Policy.
1. Write down 5 facts
2. What do you think the impact of
expansionary and contractionary
fiscal Policy would look like on a
diagram?
3. Write down 3 questions you have
about Fiscal Policy
Aims of Fiscal Policy

1. To maintain low and stable inflation.

2. To achieve a low unemployment rate

3. To achieve stable conditions for long run economic growth.

4. To reduce fluctuations in the trade cycle.

5. To promote an equitable distribution of income.

6. To achieve external balance between export revenue and import expenditure.

Fiscal Policy

Divide into groups of two/three. You and

your partners are the newly appointed
Chancellors of a small country. You are
tasked with delivering the fiscal budget to
the citizens of your country. Read and follow
the instructions on the handout provided.
You have 15 minutes to make your decisions
and finish your presentations.
Diagram
Expansionary
Fiscal Policy
This is where the
government aims to
increase AD by
encouraging greater
Consumption (reducing
income taxes) and/or
Investment (decreasing
corporation taxes), and by
increasing its own
spending.
Diagram

Task:

With a partner, list

the positive and
negative
consequences of the
government using
expansionary fiscal
policies.
Diagram
Contractionary
Fiscal Policy

This is where the government aims

to decrease AD by discouraging
Consumption (raising income
taxes) and/or Investment (raising
corporation taxes), and by
decreasing its own spending.
Diagram

Task:
With a partner, list the
positive and negative
consequences of the
government using
contractionary fiscal policies.
Engineering Economic Growth
Real-world Application: (adapted from Kognity)
-US Tax Cuts and Jobs Act of 2017
1) Read the following case study and answer
the questions that follow.
Task: Read the article linked into
the slide and answer the questions
below:
Indonesia 1. 1. Using a diagram, explain the
balances current situation in Indonesia and
what they expect to happen.
growth with 2. 2. Using a diagram, how might
‘curbing spending’ impact the
debt (SG economy?
business times) 3. 3. Discuss the trade-off between
growth and government debt.
Engineering Economic Growth
Task:
- This table will be completed as we cover the different
policies to engineer economic growth.
- It will help develop the analysis for each policy.

- Make a copy of the document attached and complete the

analysis and evaluation of expansionary and fiscal
policies.
Engineering Economic Growth
Singapore video Task: Here
Monetary Policy
Barter
Challenges with the barter system:
1. There must be a double coincidence of wants
● Buyer must want what the seller has and vice versa

2. The goods must be divisible to allow for a fair

exchange
● How do you divide a cow to buy a pint of beer?

3. Values must be agreed upon by both parties

● How many apples for one cow, and how much
cheese for one apple?
History of Money
The History of Money (Spoof) The Story of Money
Characteristics of Good Money
Acceptable Portable
Money must be seen to be Money must be easy to
of value. carry.

Characteristics
of ‘good’ money

Divisible
Durable Scarce
It must be possible to divide
Money must stand up to Only when money is limited
money into smaller units to
wear and tear so that it can will people value it and use it
allow for the exchange of g/s
serve as a store of value. as a medium of exchange.
of different values.
Functions
of Money
Functions &
Characteristics of Money

From all of your discussions so far,

do you think Bitcoin is real money?

Discuss on your table groups and be

prepared to feedback to the class.
KAHOOT!!

Kahoot quiz: What is money, actually?

Central Banks/Monetary
Authority/Federal Reserve Bank

The Role of Central Banks

1. Regulators/auditors of
commercial banks
2. Bankers to governments
3. Manage a country’s monetary
policy
Central Banks

The Role of Central Banks

Central banks are often made
responsible for interest rates and
exchange rates in order to achieve
macroeconomic objectives. How they
choose to deal with this responsibility
is their monetary policy.
Central Banks

The Role of Central Banks

Central banks manage a country’s monetary
policy by adjusting the money supply to meet
macroeconomic goals. They use interest
rates to manage the money supply.

Central banks are generally independent of

gov’t to avoid political interference.
Should Central Banks be Independent?

Watch this video and think about

the issues raised about
monetary policy decision making
and whether central banks
should be independent?
Central Banks

Interest Rate (IR) (the price of

money)
A fee charged on borrowing and a reward
given to savers.

● A larger supply of money leads to lower

IRs.
● A tighter supply of money leads to higher
IRs.
Central Banks

Interest Rate (the price of money)

● ⇡ IRs make it more expensive to borrow
and more lucrative to save. This leads to
a ⇣ in C and I, and AD shifts left.
● ⇣ IRs make it less expensive to borrow
and less lucrative to save. This leads to
an ⇡ in C and I, and AD shifts right.
Money Market
Diagram “IR”

Money supply is considered independent of

interest rates as it depends on decisions made by
the central bank (which fixes the money supply).
Monetary Policy

“Think of the Economy as a House

Party”
1. Explain what Trevor means by
“delicate balance” in this video

2. What is the role of interest rates

and monetary policy in an
economy?
Monetary Policy

Expansionary Monetary Policy

This is used in periods of recession
and high unemployment. The
money supply is increased, which
decreases interest rates and
encourages C and I.
Monetary Policy

Task: Expansionary Monetary Policy

1) Draw a diagram on page 34 of your workbook and explain how the
use of expansionary monetary policy will impact the economy.
2) List the positive and negative consequences of using an
expansionary monetary policy.
Monetary Policy

Contractionary Monetary Policy

This is used in periods of high
inflation. The money supply is
decreased, which raises interest
rates and discourages C and I.
Monetary Policy

Task: Contractionary Monetary Policy

1) Draw a diagram on page 34 of your workbook and explain how the
use of contractionary monetary policy will impact the economy.
2) List the positive and negative consequences of using
contractionary monetary policy.
Monetary Policy

Monetary Policy Objectives:

Some central banks attempt to use monetary policy to
balance the objectives of Economic Growth, full
employment and a low rate of inflation; however, this can be
a difficult balancing act to maintain.
Monetary Policy

Strengths of Monetary Policy

1. Speed: can be enacted quickly so that effects are felt quickly.
2. Control: money supply can be adjusted discretely and more accurately
to meet a target inflation rate (as compared to fiscal policy).
3. No politics: most central banks act independently of government, so
that can act without interference or political pressure.
Monetary Policy

Weaknesses of Monetary Policy

1. Investors may be reluctant to borrow: in a recession, consumers are
fearful of borrowing, even if interest rates are low.
2. Time lags: although quick to put in place, monetary policy may take time
to take effect, and it depends on the elasticity of investment.
Monetary Policy

Watch this video from Mr Clifford

for a recap of monetary policy -
with a partner note down all of
the key concepts he discusses.
By now we should understand
them all - if not, let’s review.
Central Banks

Task:
- Read the following article on China’s interest rate changes.
- Define Monetary policy [2]
- Using a diagram, Explain why China is cutting interest
rates.[4]
- Using a diagram, explain what China is trying to achieve by
cutting interest rates. [4]
- Evaluate (explain the advantages & disadvantages) the use
of expansionary monetary policy by China. [10]
Supply-side Policies:
- Aimed at increasing the long-run productive potential of the economy by
improving the quality and quantity of FOP’s.

There are two categories of

supply-side policies: LRAS

1. Interventionist - eg investing in
human capital, infrastructure
and R&D
2. Market based - eg labour
market reforms, deregulation
and tax changes
Supply-side Policies:
- Aimed at increasing the long-run productive potential of the economy by
improving the quality and quantity of FOP’s.

1. Supply-side policy analysis activity

Supply-side Policies

Interventionist Strategies
Based on the assumption that a free
market economy cannot increase
potential output (LRAS) on its own,
and that government intervention in
specific areas is necessary.
There is some overlap with LR fiscal
policy measures.
Supply-side Policies

Interventionist Strategies

1. Investment in human capital

2. Investment in technology
(research and development)
3. Investment in infrastructure
4. Additional industrial/business
support and policies
Supply-side Policies

Interventionist Strategies

Investment in human capital

What can the government do to
invest in human capital? Brainstorm
with a partner.
Supply-side Policies
Interventionist Strategies

Investment in human capital

Training and Education
Increases quality and productivity of labour.
● Retraining structurally unemployed people
● Education grants & subsidies for young people
● Gov’t can hire and train workers
● Subsidize firms to hire structurally unemployed
● Provide subsidised housing to help people move to
areas where there are jobs
● Start gov’t projects in areas of high unemployment
Supply-side Policies
Interventionist Strategies

Investment in human capital

Training and Education
Working in groups of three, answer the
following questions:
1. What are the advantages/disadvantages of
investing in human capital?
2. Look for examples of countries that have used
this strategy, and see if you can find information
on the eventual impacts/outcomes. Share that
with a group at a different table.
Supply-side Policies
Interventionist Strategies

Investment in human capital

Health Care
Improving health care facilities and
people’s access to it should lead to a
healthier and more productive labour force.

As such, many economies spend a

significant amount of money on health
care.
Supply-side Policies
Interventionist Strategies

Investment in Technology
Policies that encourage R&D will
have a short-term impact on
aggregate demand, but more
importantly will result in the
development of new technologies
and will increase LRAS.
Supply-side Policies
Interventionist Strategies

Investment in Technology
Watch the video here and consider
how this will shift Singapore’s LRAS
to the right.
Supply-side Policies
Interventionist Strategies

Investment in Technology
● Governments may subsidise R&D efforts to
promote the development of new and
improved capital.
● Governments may offer incentives (tax
breaks) to encourage firms to invest in R&D.
● Governments can grant patents to protect
new ideas so that firms have time to recoup
their R&D costs.
Supply-side Policies
Interventionist Strategies

Investment in Technology
Working in groups of three, answer the
following questions:
1. What are the advantages/disadvantages
of investing in technology?
2. Look for examples of countries that have
used this strategy, and see if you can find
information on the eventual
impacts/outcomes.
Supply-side Policies
Interventionist Strategies

Investment in Infrastructure
Many types of infrastructure are classified as
merit goods, so gov’t intervention is justified.
Better infrastructure increases labour
productivity (AS) and increases AD in the
short run. It also increases LRAS.

● Better transport systems

● Better telecommunications
● Brazil Infrastructure spending
Supply-side Policies

Activity: Investment in Infrastructure

Using either the article on Brazil’s infrastructure spending OR Singapore TUAS port
development examples, answer the following questions:
1) Using a diagram, explain how you chosen example will cause AD to shift in the
SR. (4m)
2) Using a diagram and your chosen example, explain how infrastructure can result
in an increase in productive potential for Brazil or Singapore (4m)
3) Evaluate the decision by Brazil or Singapore to spend on infrastructure. (10m)
Supply-side Policies
Interventionist Strategies

The world is facing a $15 trillion

infrastructure gap by 2040.
Supply-side Policies
Interventionist Strategies

Investment in Infrastructure
Working in groups of three, answer the
following questions:
1. What are the advantages/disadvantages of
investing in infrastructure?
2. Look for examples of countries that have
used this strategy, and see if you can find
information on the eventual
impacts/outcomes.
Supply-side Policies
Interventionist Strategies

Additional Industrial Support

Targeting specific industries through
policies including tax cuts, tax allowances
and subsidised lending promotes growth
in key areas of the economy and will have
a short-term impact on aggregate demand
but, more importantly, will increase LRAS.
Supply-side Policies
Market-based Strategies
Based on the belief that market
forces work well, and that an
economy will automatically eliminate
recessionary and inflationary gaps
without gov’t intervention.
Supply-side Policies
Market-based Strategies

Encouraging Competition
Competition between firms can lead to
better allocation of resources as it
forces firms to minimise costs and
improve efficiency. It can also lead to
the production of better quality goods,
greater variety, and even larger
quantities.
Supply-side Policies
Market-based Strategies

Encouraging Competition
Strategies include:
● Privatisation
● Deregulation
● Reduce gov’t economic regulations
● Restricting monopoly power
● Trade liberalisation
Supply-side Policies
Market-based Strategies

Labour Market Reforms

Labour market reforms are used to
make the labour market more
flexible (more responsive to supply
and demand). The idea is to reduce
or remove rigidities that are built
into the labour market
Supply-side Policies
Market-based Strategies

Labour Market Reforms

Strategies to reform labour markets include:

● Abolishing or reducing minimum wages

● Reducing the power of labour unions
● Reducing unemployment benefits
● Reducing job security

How do each of these reforms positively impact on

the economy?
Supply-side Policies
Market-based Strategies

Incentive Related Strategies

The idea with incentive related
strategies is to increase the incentive
to work among members of the
labour force, or to incentivise firms to
invest, which leads to long-term
growth.
Supply-side Policies
Market-based Strategies

Incentive Related Strategies

Incentive strategies include:

● Lowering personal income tax

● Lowering taxes on capital gains
● Lowering business taxes
Explain how each of these strategies
lead to positive gain in the economy?
Supply-side Policies
Evaluation
You should be able to evaluate the effectiveness of supply-side
policies through consideration of factors including:
● time lags
● the ability to create employment
● the ability to reduce inflationary pressure
● the impact on economic growth
● the impact on the government budget
● the effect on equity, and
● the effect on the environment.
Export Oriented Growth

An outward-oriented growth strategy based on

openness and increased international trade where
growth is achieved by concentrating on increasing
exports and export revenue as a leading factor
supporting the aggregate demand of a country.
Export Oriented Growth

How do we Engineer Economic Growth through Exports?

Complete the following on page 41 of your workbook:

1) Read the following website. Draw an AD & AS diagram and explain
how the “Asian Tiger” countries used an export-oriented focus to
engineer economic growth.

2) What are the positive and negative consequences of these

countries focusing on exports to promote economic growth?
Export Oriented Growth:
Advantages
● Exports of goods and services are an injection into the circular flow of income leading to a
rise in aggregate demand and an expansion of output. This helps to raise per capita
incomes and reduce extreme poverty especially in developing/emerging economies.
● Growing export sales provide revenues and profits for businesses which can then feed
through to an increase in capital investment spending. Higher investment increases a
country’s productive capacity which then increases the potential for exports.
● Many industries help facilitate trade such as trade insurance, logistics and port facilities.
Countries with fast-growing export sectors are likely to see increased investment and
employment in these related industries. A good example is the importance of trade to
countries such as the Netherlands (including the port of Rotterdam), and Singapore and
Hong Kong both of which have developed in globally-scaled hubs for trade
Export Oriented Growth
Disadvantages:
● Focusing on exporting might lead to over-dependence on trade partner countries and
vulnerability to external economic and political shocks
● Running persistent trade surpluses (exports revenue > import expenditure) may result
in other countries using protectionism methods to protect their domestic producers.
● Production capacity allocated to supply goods and services for export cannot be put to
use meeting domestic needs and wants. There might be a consequent dip in domestic
living standards.
● Rapid export-led growth might lead to inflationary pressure and higher interest rates.
● Export-led growth might be unsustainable if it contributes extraction of natural
resources beyond what is required for long term balanced growth to be maintained.
Consider for example the impact of deforestation and over-fishing and degradation of
land by industrial-scale farming.
What are the consequences of
economic growth?

1.
Economic Growth

- Working in groups, see if you can come

up with a detailed list of the
consequences of economic growth -
both positive and negative.
- Consider the SR and LR consequences
of economic growth
Economic Growth
Positive Consequences of Economic Growth

1. More goods and services are produced,

which means more wants are satisfied, and
there may be greater choice for consumers.

2. Increased employment opportunities are

created, which leads to increases in
household incomes.
Economic Growth
Positive Consequences of Economic Growth

3. Increased sales, revenue, profits, and business

opportunities, which may in turn lead to greater
innovation.

4. Low price inflation if output growth keeps pace

with demand.
Economic Growth
Positive Consequences of Economic Growth

5. Tax revenues should rise, so governments have

more resources to improve public services and
public infrastructure.
6. Improved living standards if increases in
national income are evenly spread across the
population and tax revenue is spent for the
good of everyone (i.e. on healthcare and
education rather than defense).
Economic Growth
Negative Consequences of
Economic Growth

1. The limited resources available in an

economy may be used up at an even
faster rate.
2. Goods with negative externalities - like
cigarettes, alcohol, cars, televisions,
and computer games - may be
overproduced.
Economic Growth
Negative Consequences of Economic
Growth

3. Technical progress may replace labour with

machines.
4. Pollution and damage to the natural
environment (negative externalities) may
increase.
Economic Growth
Negative Consequences of Economic Growth
4. Inflation can occur if output growth does not keep
up with demand.
5. A population may not be better off if tax revenues
are directed at producing more weapons, for
example.
6. The general population may not all benefit from
growth and may not have the means to enjoy a
more comfortable lifestyle.
Conceptual Understandings

How does a balance

between economic growth
& environmental
sustainability contribute to
long term economic
success?
Economic Growth

Task:
Instructions here
Economic Growth
Resource for task:
“We should no longer be striving for
Economic Growth”
Economic Growth

Resource for task:

Economic Growth Is More
Important than You Think
How do we balance economic growth
with environmental sustainability?

1.
How do we make economic growth
more sustainable?

Task:
Using the following resources (article & video), explain in
your own words what needs to be done to make
economic growth more sustainable.
What are countries doing?

Costa Rica: Champions of Earth

Additional resources:

Costa Rica - How Costa Rica became a leader in a sustainable future article

Costa Rica - Decarbonising its future article

Examples of Countries focusing on
Sustainable growth.

Possible examples:
● Closure of islands to tourists for regeneration in Thailand (Article)
● Bhutan targets high-value tourists instead of mass tourism (Article)(Video)
● Sustainable smart towns in Japan (Article) & everyday SDG efforts in Japan (Video)
● Gothenburg: Most sustainable city (Video)
● The world’s most sustainable city (Video)
● Integration of poverty reduction and environmental processes in Latin America
(PDF)