Define economic growth, and explain using examples relevant to the Rwandan economy, how the government can influence and promote economic growth

Economic Growth can be defined as the steady increase in Gross Domestic Product (GDP) of a country as a result of an increase in the economy’s productive capacity and activity. It is concerned with improving living standards and this is a result of growth in physical output of physical goods and services.
In general there is agreement that the government can influence economic growth but there is disagreement as to what policies should be adopted. Typical measures the government can use to influence economic growth are:
• Labour: Through education and training and the identification of new work practices.
• Public Sector Investment: An example of this might be that despite or because of a recession, the government continues with capital investment programmes – in particular, infrastructure investment such as roads and national hospitals.
• Maintenance of Law and Order.
• Tax System – In particular tax on profits: Differential rates of Corporation Tax on returned profits and dividends can be used in an effort to encourage increased retention of profits and, through this, increased investment.
• Aggregate Demand: A high level and consistent level of aggregate demand (AD) can be achieved by way of fiscal and monetary policy.
• Competitiveness: Achieved, by and large, through cost levels, innovation, enterprise and production techniques and methods.
• People’s attitudes: People need to have confidence in the economy and have attitudes that are favourable to growth.
• Interest Rates. If the cost of borrowing is high, investment will be low.
• Research and Development.
• Level of State Intervention.

Share through

Leave a Reply

Your email address will not be published.