Topic 7

• reducing the use of protectionist polices explanation

  • engaging in expansionary demand and supply-side polices will promote growth
  • economic growth has a very positive impact on economic development
  • often in less developed countries, economic growth is linked with one industry and generates negative externalities of production, possibly resulting in decreased living standards
• reducing the use of protectionist polices: impact of poverty cycle

  higher growth -> higher wages -> better education/healthcare -> better human capital -> better productivity -> higher income
• education explanation

  • investing in this supply-side policy increase potential output of the country (PPF shifts outwards)
• education: impact of poverty cycle

  higher education/sill levels -> higher human capital -> increased productivity -> higher output -> higher income
• state benefits explanation

  • usually given to poorest and most vulnerable in society
  • included unemployed and disability payments, pension payments, heating discounts, public transport subsidies etc.
• state benefits: impact on poverty cycle

  more benefits -> higher wages -> better education/healthcare -> better human capital -> better productivity -> higher wages
• progressive taxation explanation

  • redistribution often starts with the provision of free healthcare and education
  • sometimes the benefits of a good progressive tax system are eradicated by the penalities imposed through multiple regressive (indirect) tax
• progressive taxation: impact of poverty cycle

  higher redistribution -> better education/healthcare -> better human capital -> better productivity -> higher income
• minimum wage explanation

  • national minimum wage set above the free market rate
  • firms not allowed to pay anyone less than the legal rate
  • raises the level of income in poorer households
• minimum wage: impact on poverty cycle

  higher wages -> better education/healthcare -> better human capital -> better productivity -> higher wages