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I.B Economics Commentary

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Egypt is experiencing economic growth without economic development. Poorer members in the community in Egypt are not experiencing the benefits from the growth in the country. Economic Growth is different from economic development. Economic growth occurs when the economy's Production Possibility Frontier (PPF) expands, which means that there is increase in the production of goods and services over a certain period of time. On the other hand, Economic development occurs when poverty, unemployment and income inequality are reduced, and standard of living and life quality are enhanced. Therefore, economic development is different from economic growth. In order for an economy to achieve economic development, the government has to enhance productivity through investing in public and merit goods. Public goods are associated with infrastructure such as roads, bridges, dams, canals and sewage systems. Investing in these areas will allow poor people in the society to have the benefit of it, and therefore the level of enjoyment will increase and they will feel touched by the growth in the country. ...read more.


in the economy to encourage borrowing from the banks and therefore increase investing in the economy as shown in figure-1, by decreasing r to r* the investment will increase from I to I*. An increase in investment will also increase aggregate demand (The value of final goods and services) in the economy and capacity. When AD increases, the economy will approach full employment level as shown in diagram-2, and more people will find jobs and level of unemployment again will decrease in the economy, and therefore the economy is experiencing economic development. Another barrier that prevents from development is unskilled labor because of the shortcomings in the education system. Therefore, investing in human capital and subsidizing merit goods such as education and training more effectively will achieve more skilled labor in the economy. This will lead to efficiency and more productivity in the local market, which might lead to more competitiveness on the international level which will give the firms more incentive to expand and produce. ...read more.


One of the most effective policies to achieve income distribution is Taxation, which can be progressive, proportional or regressive as shown in figure-4. For an economy like Egypt where income is greatly not distributed progressive taxation can be very efficient. For instance, the government can impose progressive tax, so that people with higher income will pay a higher portion of their income. This can help to redistribute income in an economy. To sum up, the growth in Egypt needs to be targeted at those sectors that will reduce poverty. Income has to be more distributed within the economy. Moreover, Egypt should encourage investing through out decreasing interest rates, and cut government debt. This will make Egypt experience not only growth but economic development. However, this means that there will be too much government intervention in the market. This will decrease the firms' incentive to work and expand. Moreover, progressive taxes might achieve income distribution, but it will give people less incentive to work and therefore it might cause a big decrease in labor productivity. ?? ?? ?? ?? 1 ...read more.

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