To increase aggregate demand or increase aggregate supply.Two effective

To achieve long-term economic growth, a government has to increase aggregate demand or increase aggregate supply.Two effective policies to increase aggregate demand are Fiscal policy and Monetary policy.Fiscal policyIt is the use of government expenditures and taxes to promote particular macroeconomics goals to counter adverse economic cycles to keep unemployment low, keep inflation of goods and services minimal, and to accomplish and maintain economic growth.To boost the economy, the government will usually reduce taxes and increase government spending. By reducing taxes, it will result in higher disposable income, that will encourage people to spend more. Higher government spending such as improving the infrastructure (building of more and better train systems), results in expanding opportunities, such as job creations.Monetary policyA national policy, executed by the Central Bank to change the economy’s money supply to aid the economy in achieving maximum output, employment and stable prices.Monetary policy is usually executed when the government lowers the interest rates of borrowing. With a drop in interest rates, it motivates people to have higher spending power and encourages (borrowing for) investments. Apart from the above mentioned policies, commonly implemented by government to increase economic growth, there are two other sources that attribute to long term economic growth – aggregate labour hours and labour productivity. Aggregate labour hours refers to the sum of hours working by all the people employed.Labour productivity is the quantity of real GDP produced per labour hour.Any changes in these two sources determines the degree of an economy’s growth.There are several avenues to increase aggregate labour hours and labour productivity to sustain long-term economic growth:Working-age population growth:Increase in population growthWhen a country experiences increasing population growth, there will be change in the working population ratio. It helps deter the aging population issue faced by many Asian countries.We can see the similar policy implemented in countries like China and Singapore.The Chinese recently removed its one-child policy in 2015 and urges couples to have more children. Alike to the Chinese, Singapore authority encourages its citizens to increase the fertility rates, by giving parents Baby Bonus, an incentive scheme – for every child they have up to the fifth child.Import of foreign labourIn 1988, Singapore’s then Minister for Home Affairs, S. Jayakumar, first announced the government’s intentions to open their doors to foreign labour to increase the working population. By importing foreign manpower, it helps Singapore address the issue of aging population as well as providing skills to the relevant sectors, contributing productivity to our economy. Since then, Singapore has been one of the preferred working locations for most foreign labour.Change in the employment-to-population ratio:Mobilising the working-age population not in the workforceCountries such as China, Japan and Singapore for the past two decades, have been trying to encourage and deploy working-age population not in the labour force, such as housewives or mothers to join the workforce so as to address and diversify the shortage of working population.In September 2007, in Japan, Japan Women’s University (JWU) initiated the “Recurrent Education-Employment System” with the government’s financial support.It is one-year program, that allows women with bachelor degrees and working experience take courses to improve their work skills.Similarly in Singapore, government has held training courses and career fairs catered for women who is looking to enroll back in the workforce after a break.Changes in average hours per worker:Extension of retirement age / re-employment ageAnother viable policy that government implements to achieve economic growth is to extend the retirement age of the working population. In Singapore, the present official retirement age is 62. The retirement age has been raised from 55 to 62, over the years. In 2012, Singapore implemented Retirement and Re-employment Act (RRA) for older workers to continue working beyond the retirement age with a set of prerequisites.On 1 July 2017, Singapore authorities raised the re-employment age from 65 to 67.With the retirement and re-employment age extended, the older working adults can work longer, hence assisting to further increase the working-age population’s productivity and contributing to the economic growth.Physical capital growth:Attract foreign direct investmentsBesides attracting foreign labours to come Singapore to work, Singapore government, namely Economic Development Board (EDB), has been positioning Singapore as a strategic place to set up business, with low corporate tax to attract foreign investors and global multinationals corporations to set up its operations here.Promote international tradeSingapore has been actively promoting international trade and one of the examples is, the signing of Free Trade Agreements (FTAs). With the agreement in place, it eliminates trade barriers and allows countries to trade internationally without much hindrance. As a result, Singapore has access to new markets, achieving economies of scales and improves productivity.Encourage domestic savings Back in 1955, Singapore government recognised the significance of domestic savings as potential investment fund, and started a compulsory savings program, Central Provident Fund (CPF) to encourage locals to save up. Today, CPF continues to be mandatory for all Singaporeans and contributes to the economy’s long term growth.Technological Advances:Encourage Research and Development (R&Ds) Over the years, Singapore has been actively promoting R&D efforts. By investing in the area of R&D, it will contribute notably to the economy and creates opportunities and jobs, help the working population to thrive amidst technological changes and globalisation.Human capital growth:Improve the quality of education and continuous trainingGlobally, Singapore has one of the world’s best education systems. Despite that, Singapore government continues to invest in the education and training sector. As the world and technology advances, the labour market changes, likewise the skills demanded within the workforce transforms as well. Therefore, it opens up more opportunities, increasing the efficiency and productivity, and contributing to economic growth.Economic growth, implies the economy is doing well and firms are producing more goods and services. Unemployment rate will decrease and there will be a reduction in poverty and social issues. Consumers have higher disposable income. The standard of living in general will improve as well. The government will also collect more taxes, because people will pay more income tax. This is favorable to the government because the increased revenue can be spent on further improving the country’s infrastructure and public services such as transportation and healthcare provision.With the positive change of standard of living and the country’s infrastructure, the health of the population also improved due to better healthcare facilities due to government’s investment.On the flip side, economic growth has its negative impact to a country. With the increase in demand for goods and services, inflation is likely to occur if the firms cannot meet the demand of the consumers and an economic downturn or recession may happen. Hence, it can be very damaging if the government cannot sustain beyond the economic growth rate.An increase in economic growth could lead to a transaction and payments problem as well. Assuming the growth in economy is caused by consumer expenditures then imports would likely increase. Should the imports surge faster than the exports, then the government would encounter a deficit in revenue.Prolonged economic growth can cause undesirable effects as well.Environmental costsFirms yield higher output will lead to increased pollution and congestion which may possibly lower living standards and/or create health issues such as poor traffic conditions, or increase in breathing difficulties due to poor air conditions. The growth will lead to potential depletion of natural resources, and that could crumble industries which rely on it for business, such as oil and gas companies.Income InequalityEconomic growth often leads to increased income inequality because the disparity between the rich and the poor widens, when inflation occurs. This in turn, could lead to many other social problems such as, social inequality.However, economic growth does not imply a direct cause of inequality if the government can ensure that the growth is more inclusive, at all levels.


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