What does the government have to gain by tracking unemployment, inflation and gr

Question

What does the government have to gain by tracking unemployment, inflation and gross domestic product? What other economic indicators can you think of besides Starbucks? Explain your answer.

Through its policies and institutions, how has the United States government influenced U.S. long-run economic growth? Why might persistently large borrowings by the U.S. government ultimately limit long-run economic growth in the future? Do you feel the government plays too large of a role in maintaining long-run economic growth?

Explanation / Answer

1.

It is government;s responsibility to try to acheive economic stability of the country . It cash flows and changes its policies accordingly to acheive this stability. In order to know how much cash should be injected into economy and to decide on what changes should be made in economic polocies , government need to trak unemployment, inflation and other few factors .

2.Look at the sub prime issue,an internal matter for any country but has played havoc in the world stock markets.But for the American MNCs,it's economy would have collapsed long time back.But the policies and institutions of US had not allowed to . So we can say government plays too large of a role in maintaining long-run economic growth

answer for (Why might persistently large borrowings by the U.S. government ultimately limit long-run economic growth in the future)

Government borrowing may hurt long term growth through the "crowding out effect". First make a couple assumptions:

1) We are in a solow growth world, where (per capita) capital stock is the ultimate limit on growth

2) Government spending does not add to the capital stock of the economy

Thus, the best thing for growth is investment in capital. If however, the government has run up a large debt, they need to finance it no matter what. Funding this debt diverts investment from the capital stock. The higher the government offered interest rate is, the more it "crowds out" private investments.

Quick example:

I am a CFO with an investment project. The project has a 6% internal rate of return. Thus, if I can borrow funds for less than 6% I will invest in the project (and presumably build the capital stock, incresing long term growth). However, if government bonds are paying 7%, no one will loan me money at 6%, and I won't undertake the project. It will have been "crowded out".

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.