Essays on Fiscal Policy and Unemployment Assignment

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The paper 'Fiscal Policy and Unemployment' is a great example of a Macro and Microeconomics Assignment. One of the factors leading to long-run economic growth is abundant natural resources. Globally, countries depend on their natural resources for growth. For instance, the United Arab Emirates and Saudi Arabia depend substantially on their oil reserves for the growth of domestic product (GDP) (Kibritcioglu and Dibooglue 2001). The exploitation of these oil reserves for exportation of oil is therefore a critical means to achieving economic growth. Increased quality and quantity of raw materials would also lead to increased long-run economic growth.

For instance, an increase in the number of viable oil wells in Saudi Arabia would lead to growth in the long-run aggregate supply curve. This can be demonstrated graphically as shown belowFigure 1: Corresponding growth in potential growth due to the rise in LRASFrom the above diagram, an increase in natural resources will cause the long-run aggregate supply curve to shift from, LRAS 1 to LRAS 2, thus increasing the aggregate output from Y1 to Y2. The long-run trend rate determines the average sustainable economic growth rate over a particular period.

It depends on the productive capacity growth in an economy and hence influences the long-run aggregate supply curve (LRAS). Therefore, long-term economic growth originates from increased quality and quantity of an economy’ s factors of production. Growth is measured by an economy’ s capacity to increase output (Kibritcioglu and Dibooglue 2001). The increased capital resource is also a critical factor. Investing in new technology (such as mass production machinery) is likely to increase efficiency, and ultimately shifting the long-run aggregate supply curve outwards, thus leading to long-run economic growth.

Enhancing the capital stock, as well as utilizing it effectively results in long-run economic growth. For instance, Japan is known for having one of the faster growth rates due to its high capital investment. This led to the rise of multinational companies, such as Toyota and Panasonic, especially after the Second World War. However, the country experienced a great economic recession in the 1990s, which affected its growth performance leading to a decline in some of its companies. Still, capital investment is not necessarily sufficient. For instance, if Japan seeks to invest in declining industries, then such an investment would be a waste.

Reference

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Basu, K 2011, Understanding Inflation and Controlling It, viewed 17 Jan 2015,

Battaglini, M & Coate, S 2011, Fiscal Policy and Unemployment, viewed 17 Jan 2015,

Kibritcioglu, A & Dibooglue, S 2001,"Long−Run Economic Growth: An Interdisciplinary Approach," Business UIUC Working Paper 0-1-0121

Laubach, T 2003, “New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Federal Reserve, viewed 17 Jan 2015,

Pétursson, T 2008, "How hard can it be? Inflation control around the world," Central Bank Of Iceland Working Papers No. 40

Thoma, M 1994, "The Effects of Money Growth on Inflation and Interest Rates Across Spectral Frequency Bands," Journal of Money, Credit and Banking, vol 26 no 2, pp. 218-231

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