Promoting growth and fighting poverty should be the priority in the developing world, not reducing greenhouse gases do you agree?

Poverty would also cause aggregate demand curve of an economy to shift to the left. This is because people will have lower purchasing power, and due to this people will spend less. This reduction in spending and as consumption is a component of aggregate demand the aggregate demand curve will therefore shift to the left.

Reduction in demand will also trigger many negative effects, such as unemployment and lower investment; which are also withdrawal from the circular flow of income.  Reduction in demand mean that firms and businesses will have excess supply due to reduced consumption. This will cause firms and businesses to try and reduce their production costs by reducing labour. This will cause an economy to suffer unemployment and therefore spare capacity. Spare capacity will also cause the Production possibility frontier to shift to the left leading to lower economic growth and lower GDP. This is shown in the diagram below.

Reduced demand can also reduce investment within and economy, this is because firms and businesses would avoid expanding or starting a new business when there is lower demand and this will prohibit potential economic growth. Poverty can also prevent any international investments being made within a country preventing foreign relationships with bigger firms and businesses due to poverty affecting the country’s reputation of being regarded as less developed. This will give foreign firms the idea of not gaining any revenue or profit from investing in a country. This could also prevent potential employment and economic growth in a country.

However spending money on fighting poverty and economic growth can also create “trade-off” with spending money on technology and new inventions. If an economy spends money on fighting poverty rather than research and development, it will create great benefits such as increased productivity and lower spare capacity within an economy. However it may also potentially reduce specialisation which can be attained through research and development. Increased expenditure on research could mean new technology which could generate more jobs in the longer term, as well as increase the production of goods and services in less amount of time. This would create even faster pace of growth within an economy.

To conclude I believe that we as an economy must start to prioritise fighting poverty, in order to sustain growth. Fighting poverty would reduce spare capacity which would increase a country’s productivity which will shift the PPF and aggregate supply curve to the right. It will allow more jobs to be created as well as increase consumption and investment within an economy; and as consumption and investment are components of aggregate demand, aggregate demand will also shift to the right. Reducing poverty will also give a county as being well developed and this will allure more foreign investments from bigger firms and businesses, which will create foreign relations between them as well as generate more jobs and create a better standard of living. However it can also be argued that reduced prioritisation on greenhouse gases can create dangerous consequences for not just our economy but out world too. Greenhouse gases can create global warming which will then cause natural disasters to occur such as ice caps melting, sea levels rising, volcanic eruptions and floods. This in the longer term will affect our economy and drastically reduce economic growth and may even cause slump phase to arise in the economic cycle. This is because natural disasters can destroy the factors of productions, which means that resources to make goods and services will be lost such as labour and land, and in order to recover these resources lots of money will be spent on treatments and rebuilding land. However I believe that in order to reduce these greenhouse gases many actions are being taken, by not just the UK government but by many countries such as the EU. This is through the Kyoto Protocol, which is an international agreement by countries that have signed up and have committed to reduce their greenhouse emission within a certain period of time.