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Discuss how the government might improve the UK's long term economic growth

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Discuss how the government might improve the UK's long term economic growth There are numerous polices which the government could pursue to improve the long term economic growth of the economy and ensure increases in real GDP. Firstly, they could make changes to the labour force. The government has recently being encouraging immigration into the UK. This has had the effect of increasing the labour force (a factor of production) and thus will have a largely positive effect on long term economic growth. This is possibly one of the best policies for the government to take - the UK gets more workers to do jobs that would otherwise remain unfilled, and since the immigrants are now living in the UK, they will do a large proportion of their spending within the UK, so AD will go up and thus firms become more profitable and increase production. Another option is to increase the retirement age. This means that people stay in the work force longer, and so are economically active for longer. ...read more.


Low inflation and interest rate means that the cost of borrowing will be low and business confidence will be high. This will lead to investment, which improves the competitiveness and productive capacity of our economy in the long term. However, although we have now achieved low and stable inflation and low interest rates, investment has failed to increase as we have put all of our money into the housing market. In order to increase investment, the government needs to lower taxes on business profits, which are the major source of funds for investment. If taxes on businesses remain at this high level, then this is likely to hinder economic growth and reduce competitiveness. A number of policies to improve productivity could also be considered. Better training and education will lead to long term economic growth. The government could choose to invest in the education system, but this obviously costs a lot of money (and the government will have less money if income tax and business tax is cut). ...read more.


However, it could legitimately be argued that many immigrants send the majority of their money back to their families in their home countries, so there is a flow of money out of the UK which may harm economic growth. Cuts in benefits may mean that people who really cannot find work suffer, and this may lead to increased poverty/inequality. A cut in taxation will also mean that the government's income has been reduced, and this may increase further the UK's budget deficit. The income and substitution effects must also be taken into account. If there is a tax cut, people may decide to work longer hours as they are now taking home more of their income. Equally, they may decide that they can now earn the same as they were before by working fewer hours. If people choose to work fewer hours, then both potential and actual output are likely to suffer. The government must carefully analyse each policy to determine if they are likely to be beneficial or detrimental overall. Every policy has its downside. ...read more.

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Response to the question

The question engages at an okay level with the task. I would've liked to have seen the introduction been a bit more useful, as it doesn't add anything and would simply waste time in an exam. I would be looking ...

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Response to the question

The question engages at an okay level with the task. I would've liked to have seen the introduction been a bit more useful, as it doesn't add anything and would simply waste time in an exam. I would be looking to define what long term economic growth is, as it isn't as simple as an increase in real GDP. This would set the essay up for a strong argument, instead of just saying there are a number of policies available. The command word discuss signals there should be some evaluation, but there isn't much noticeable here. For a question like this, I would be looking at what policy is the most effective, or what the effectiveness depends upon.

Level of analysis

The analysis here is good, and there are some perceptive comments. However, there is a focus on an increase in aggregate demand throughout the answer. As mentioned above, long term economic growth isn't as simple as increase in real GDP, and should be looked at as an increase in the economy's production potential. The explanations here are good, as each step clearly follows on from the last. I would've liked to have seen some inclusion of diagrams to support "so AD will go up and thus firms become more profitable and increase production" and offer an insight into macroeconomic equilibrium changing. Being able to show a clear understanding of a mechanism will gain marks, as it is much better than asserting knowledge without reasoning. There is a perceptive discussion around immigration, putting pressure on the benefits system, which shows awareness that policies have limitations. I would've discussed the extent to which each policy will facilitate long term economic growth, and which is most effective, to gain the top marks. A diagram of the PPF would've been essential.

Quality of writing

The essay has clear paragraphs, but the introduction and conclusion are weak. They both add very little to the argument, and the short conclusion shows an inability to come to a justified judgement. Saying "each policy has its downside" is a poor way to end an essay, as it just seems as if you're sitting on the fence! The clear paragraphs mean that each point is elaborated fully, and there is no repetition. Spelling, punctuation and grammar are fine, and technical terms are used.

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Reviewed by groat 20/03/2012

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