Economic Growth: The Three Important Economic Policies

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2.1. Economic Policy Economic policy refers to the actions that are intended to control or influence the behaviour of the economy by governments. Such as the systems for setting levels of taxation, the money supply, government budgets and interest rates as well as the national ownership, labour market, and many other areas of government interventions into the economy. (Wikipedia, 2014) There are the three important economic policies goals that are generally accepted which are economic growth, price stability and full employment. In this report, we will mainly discuss on economic growth. 2.2. Economic Growth Economic growth is the increase in the production and consumption of the goods and services in one period compared to another. It is…show more content…
Demand Side Policies Demand side policies aim to boost aggregate demand in the country. Demand side policies play a very important role in increasing the rate of the economic growth when the country is experiencing a recession period. Below are some examples of the demand side policies. 3.1.1. Monetary Policy Monetary Policies are the decisions guided by the monetary authority to manage the money supply or to change the interest rate to influence the rate of economic growth. When the monetary authority (or central bank) lowers the interest rates, it reduces the cost of borrowing which encourages people to take loans and mortgages; it also encourages investment. On top of that, people will become more willing to spend instead of saving. As a result, it increases the aggregate demand in the country. For example, when the global financial crisis broke in 2008, in UK, the Bank of England’s Monetary Policy Committee (MPC) lowers the interest rate from 4.5% to 0.5% less than 6 months to cut the cost of borrowing (BBC, 2014). The purpose of this is to encourage people to investment and spend more instead of saving in order to increase the aggregate demand in the…show more content…
For example, the EU-Canada trade agreement (Comprehensive Trade and Economic Agreement). The agreement removes over 99% of tariffs between the two economics (EUROPEAN COMMISSION, 2014). As a result, it created a huge new market opportunities in services and investments. 3.3.3. Human Capital Development Human capital development refers to the development of the skills and knowledge of the labour force in the economy. Investment in human capital by spending more funds to education and training is an important key to open the door of the developed economies. As human capital development provides important skills and knowledge to ensure the good productivity and efficiency in the economy. 3.3.4. Providing Incentive Providing incentive refers to government providing incentive to individuals to encourage them to set up their own business or encourage small business to expand. For example, in Singapore, “Tax Exemption Scheme” exempts the tax to companies on chargeable income of up to S$300,000(STRB, 2003) and “Productivity & Innovation Credit (PIC) “offers 60% cash rebates of the investment (Paul Hype Page, 2014). The schemes are aim to encourage people to set up business and to upgrade their business. Thus, more people are willing and able to set up business and upgrade their business. As a result, it

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