• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

An increase of government spending in secondary education will mean that a larger portion of student

Extracts from this document...

Introduction

The government has recently announced substantial increases in expenditure on secondary education. Using aggregate demand and supply analysis, examine the consequences of this for macroeconomic policy objectives in both the short and long run. An increase of government spending in secondary education will mean that a larger portion of students would stay on for longer education and become better skilled therefore producing a more productive labour force. While there is no expansion in the UK's total labour supply, there is a large increase in the productive potential of an economy. Increased quality will improve the productivity (efficiency) of labour. As with the product market policies, successful labour market supply side policies will shift the LRAS curve to the right. The same effect can also be illustrated by an outward shift in an economy's production possibility frontier. At first there would be a small leftward shift of the supply curve as more students are staying in education in the short-run, which is combined with a rightward shift to the aggregate demand curve as there is an increase in government spending with a little net change in price. ...read more.

Middle

Economies that have invested heavily in education are those that are well set for the future. Most economists agree, with the move away from industries that required manual skills to those that need mental skills, that investment in education, and the retraining of previously manual workers, is absolutely vital. It should also be noted that improved training, especially for those who lose their job in an old industry should improve the occupational mobility of workers in the economy. This should help to reduce the problem of structural unemployment. A well-educated workforce acts as a magnet for foreign investment in the economy, which adds to the aggregate demand of the economy helping to further shift the aggregate demand of the economy raising the average price and GDP. The international competitiveness of British firms in domestic and overseas markets, from improved productivity, businesses can develop a competitive advantage in markets where there is intense price and non-price competition from overseas suppliers, hence further maintaining the aggregate demand shift. The Irish economy is a great example of how supply side reforms designed to increase the qualifications and skills of the labour force, together with favourable tax rates for companies and workers - has encouraged a huge flow of inward investment from overseas (in particular from the United States). ...read more.

Conclusion

If the British economy can raise the rate of growth of productivity then the sustainable growth of national output can also pick up. This has implications for living standards, unemployment and tax revenues and government spending. Long run aggregate supply is determined by the productive resources available to meet demand and also by the productivity of factor inputs (labour, land and capital). Changes in technology also affect the potential level of national output in the long run, and hence add to the shift in the possibility production frontier of the UK economy. In the short run, producers respond to higher demand (and prices) by bringing more inputs into the production process and increasing the utilization of their existing inputs. Supply does respond to change in price in the short run - we move up or down the short run aggregate supply curve, proportionate to the price change depending on the price elasticity of supply. In the long run we assume that supply is independent of the price the productive potential of an economy is driven by improvements in productivity such as the rise in labour productivity through investment in secondary education. ?? ?? ?? ?? L8th Macroeconomics Homework Frederic S. Wolens Page 1 09/05/2007 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Goverment spending. How and why the Government spends and how this might affect Tescos.

    * Police/Army Local - In the local agency, the government spends money on * Local authorities - * Library - Books, computers etc will need to be paid for. * Council - They offer homes to the general public, cleaners to make sure the environment is clean etc.

  2. The Nature of Macroeconomics

    as % GDP * AD growth slows as C slows and I falls * Employment growth slow Late downswing * Inflation declines (deflation) * Interest rate decline * CAD declines as imports fall * AD falls as C & I decline --> surpluses in factor & product markets drive prices

  1. Economics - Classical School of Thought, Keynesian School of Thought, Supply Side School of ...

    monetary history and theory, and for his demonstration of the complexity of stabilization policy." Beliefs 5 Main Features of Monetarism (1) Monetarist Transmission Mechanism The first main feature urges that agents dispose of excess money supply by purchasing goods rather than bonds. This idea is named the Monetarist Transmission Mechanism.

  2. Retailing In India - A Government Policy Perspective

    And retailing productivity is a very important factor in determining the economy-wide productivity of a country. For example, retail trade constituted nearly one-fourth of the extra-ordinary productivity jump experienced by the USA towards the end of the last millennium. Productivity is a key factor in retailing also because of the

  1. Case Study: The Home Depot

    Another technical force that was and will be an opportunity is the productivity improvement programs. These kinds of programs are designed to make among others a more effective use of existing and new store space. The last technical force that was and in our opinion will be an opportunity is the Electronic Data Interchange (EDI)

  2. How Can British Airways Increase Profitability?

    Key Easyjet Ryanair British Airways Source: http://www.uk.finance.yahoo.com British Airways' share price has dropped by about 60% in the last year. Whereas it's short haul competitors' share price has steadily increased and also recovered much quicker from the economic downturn of September 11th.

  1. This report will establish the opportunities and threats presented to Sony by the EU ...

    This treaty allows the community the right to make laws that apply to all the member countries also the individuals in these communities have the right to take any other individual, firm or government to court who break the community law.

  2. Should the government increase spending to get out of a recession?

    Therefore, in order to fund a government proposal, the necessary revenue has to be generated. You can't buy a 30p apple without 30p8. The problems that arise from this are substantial. If the government raises taxes, ceteris paribus, consumption will decrease, as consumers have less discretionary income.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work