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    Here is my essay plan for the following question: 'Discuss the view that an increase insavings and investment in Zambia is likely to be the most effective policy insustaining economic growth' (20 marker)

    Yes savings and investment is an effective policy:
    - Harrod-Domar Model states that savings and investment are the key drivers of economic growth
    - However it depends on the quality of investment i.e. capital output ratio (how much capital is needed to produce each unit of output)
    - Harrod-Domar model states that: Rate of GDP growth = savings ratio/capital output ratio
    - Savings drive investment and can lead to expenditure on education, infrastructure, diversification which will help improve Zambia's economic growth by addressing some of its supply-side weaknesses and investment can help to create employment etc.

    However:
    - Savings aren't as important for investment as the Harrod-Domar model suggests because aid and fdi can be used to plug the savings gap in developed countries. Therefore these capital flows allow more investment to take place than the savings of a country would otherwise suggest

    Moreover alternative policies include:
    - Public sector investment (i.e. spending by the government)
    - Supply-side policies such as deregulation and privatisation
    - Fiscal and monetary policy e.g. increasing taxes on mining, lowering interest rates and reducing corporation tax and income tax to increase AD (short-run economic growth), higher interest rates to attract hot money flows (helps to offset the current account deficit), lower corporation tax to encourage FDI
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    (Original post by lulus1)
    Do we need to know trade creation/diversion diagrams? We weren't taught them
    it is part of the syllabus and it is similar to a tariff diagram, protectionism is also mentioned in extract 1
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    Here is my essay plan for the following question: 'Discuss how effective the Zambian government has been in its attempts to promote longrun economic growth'

    The government has been effective:
    - The government spends around 6% of GDP on healthcare and as shown by figure 3.1 in the pre-release life expectancy has risen. Therefore the government has helped to improve health incomes which should contribute to higher productivity
    - The government has been able to attract FDI + all the benefits that come with it
    - The government has already created special economic zones e.g. in Lusaka - helps with diversification
    - Zambia has started to improve the tourism sector e.g. the recent lifting of the ban on Zambian registered airlines into the EU airspace will improve the tourism sector in Zambia. Moreover the national broadcaster ZNBC plans to open a tourism channel. % of tourism as GDP has been increasing

    The government has not been effective:
    - Too much FDI is focused on the mining sector
    - The mining sector is still too important to the economy - Zambia needs to diversify further
    - Only 1.35% of GDP is spent on education
    - The tax system is still extremely inefficient
    - Public sector wages are 3 times private sector wages
    - Needs to improve access to credit through mobile technology e.g. Kenya's M-Pesa money transfer system

    If you have got any points to add, I would love to hear them
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    Is this okay:

    Deregulation reduces costs of production and therefore increasing productive efficiency in the long run. Therefore potential output increases which leads to a shift to the right of LRAS and therefore long run growth

    Obviously I would use better English in the actual thing but is the content okay?
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    Hi guys does anyone know how to tackle this question : "discuss the challenges to Zambia's long run economic growth potential"
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    Essay plan for the question: 'Discuss the view that Zambia's government should focus predominately on demand-side policies to improve the economy'

    Expansionary fiscal and monetary policy:

    Benefits
    - Only 16% of government tax revenue comes from mining so the gov should increase taxes on mining to reduce rising fiscal deficit (however deficit is caused by falling copper prices so increased taxes on mining may not generate much additional revenue)
    - Lowering income and corporation tax/reducing interest rates -> encourages consumer spending and investment -> raises AD -> short-run economic growth
    - Higher interest rates attract hot money flows -> helps to offset current account deficit by improving the financial account
    - Lower corporation tax encourages FDI -> employment creation, increased tax revenue, diversification

    Drawbacks
    - Lowering income tax and corporation tax could worsen the current account deficit
    - Higher interest rates attracting hot money flows from abroad could actually worsen the current account deficit as it could cause the kwacha to appreciate making imports cheaper and exports more expensive (depends on PED of export sand imports)
    - FDI may not be beneficial e.g. limited job creation, extractive FDI/land grabs, tax revenues lower than expected


    Supply-side policy

    Benefits
    - More investment in education and training would increase human capital and productivity -> increase LRAS and so cause long-run economic growth (however would worsen the fiscal deficit in short term)
    - Better education and training can help to reduce unemployment and so increase tax revenues due to more people paying income tax
    - Spend on infrastructure to improve quality of capital (and so increase LRAS) and attract greater private sector investment
    - Private sector investment would also be attracted if Zambia addresses the problem of poor access to credit. Either through mobile technology like in Kenya or deregulation in order to attract more competition in basic financial services and micro-finance organisations
    - Encourage diversification into industries such as tourism and light manufacturing through special economic zones

    Drawbacks
    - Supply-side policy is expensive
    - Opportunity cost of government spending
    - Time lag - not useful in the short term
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    (Original post by flairs)
    Is this okay:

    Deregulation reduces costs of production and therefore increasing productive efficiency in the long run. Therefore potential output increases which leads to a shift to the right of LRAS and therefore long run growth

    Obviously I would use better English in the actual thing but is the content okay?
    A reduction in the costs of production increases SRAS (not LRAS) and so leads to short-run economic growth (not long-run economic growth)

    Changes in the costs of production affect short-run economic growth

    Changes in the quality and quantity of factors of production affects long-run economic growth
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    is PRIVATE sector investment by firms in CAPITAL only??????????
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    (Original post by jessparhar)
    Hi guys does anyone know how to tackle this question : "discuss the challenges to Zambia's long run economic growth potential"
    I would just go through each of the problems that Zambia is facing and explain why these limit long run economic growth potential

    Challenges include: falling copper prices and too much importance on copper exports, fiscal deficit, current account deficit, lack of access to credit, insufficient infrastructure, inadequate education, power shortages, high unemployment, high income inequality,

    A paragraph would look like this:
    One challenge to Zambia's long run economic growth potential is insufficient and inadequate education. As shown in the case study the mean years of schooling (6.5) is much lower than the expected years of schooling (13.5). In addition the quality of teaching is poor and the government does not spend enough on education (only 1.35% of GDP). Therefore this means that the value of human capital is low which limits the productive capacity of the economy and hence long-run economic growth. In addition insufficient skills and qualifications means that there is high unemployment in Zambia meaning that Zambia is producing less output than it could potentially produce if more people were in employment

    Hope this helps xx
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    (Original post by starwarsjedi123)
    is PRIVATE sector investment by firms in CAPITAL only??????????
    Yes I think so
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    (Original post by Marshmallow21)
    I would just go through each of the problems that Zambia is facing and explain why these limit long run economic growth potential

    Challenges include: falling copper prices and too much importance on copper exports, fiscal deficit, current account deficit, lack of access to credit, insufficient infrastructure, inadequate education, power shortages, high unemployment, high income inequality,

    A paragraph would look like this:
    One challenge to Zambia's long run economic growth potential is insufficient and inadequate education. As shown in the case study the mean years of schooling (6.5) is much lower than the expected years of schooling (13.5). In addition the quality of teaching is poor and the government does not spend enough on education (only 1.35% of GDP). Therefore this means that the value of human capital is low which limits the productive capacity of the economy and hence long-run economic growth. In addition insufficient skills and qualifications means that there is high unemployment in Zambia meaning that Zambia is producing less output than it could potentially produce if more people were in employment

    Hope this helps xx
    Oh ok, thanks
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    (Original post by keynes24)
    Google
    http://www.economicshelp.org/blog/gl...ive-advantage/
    • Therefore output of both goods has increased illustrating the gains from comparative advantage.
    Exploiting comparative advantage is allowing countries to specialise and should lead to greater world output
    Thanks!
    I understand how comparitive advantage works, but I don't understand why being able to have a lower opportunity cost actually leads to higher AD or AS?
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    How would you conclude a reforms essay? After talking about economic zones, deregulation and access to credit?

    Posted from TSR Mobile
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    (Original post by Marshmallow21)
    Here is my essay plan for the following question: 'Discuss how effective the Zambian government has been in its attempts to promote longrun economic growth'

    The government has been effective:
    - The government spends around 6% of GDP on healthcare and as shown by figure 3.1 in the pre-release life expectancy has risen. Therefore the government has helped to improve health incomes which should contribute to higher productivity
    - The government has been able to attract FDI + all the benefits that come with it
    - The government has already created special economic zones e.g. in Lusaka - helps with diversification
    - Zambia has started to improve the tourism sector e.g. the recent lifting of the ban on Zambian registered airlines into the EU airspace will improve the tourism sector in Zambia. Moreover the national broadcaster ZNBC plans to open a tourism channel. % of tourism as GDP has been increasing

    The government has not been effective:
    - Too much FDI is focused on the mining sector
    - The mining sector is still too important to the economy - Zambia needs to diversify further
    - Only 1.35% of GDP is spent on education
    - The tax system is still extremely inefficient
    - Public sector wages are 3 times private sector wages
    - Needs to improve access to credit through mobile technology e.g. Kenya's M-Pesa money transfer system

    If you have got any points to add, I would love to hear them

    Resource nationalisation has meant they are being ineffective as it is discouraging FDI.

    Also you can give yourself some evaluation marks through mentioning the limitations of the economic zones e.g. they only offer benefits for the first 5 years, after which taxation goes up to 75% of profits in the 6/7th year.

    Also I would definitely mention the fact that they have "poor infrastructure" and that this needs to be addressed in order to attract further FDI and promote long run economic growth.

    Also, you talk about Zambian government spending on healthcare etc. but you must mention the restrictions on this i.e. how will they fund it? We know they aren't effective in collecting taxation so perhaps they are borrowing, this could lead to debt creation and potentially increasing corporation tax in trying to pay back debt. Ultimately, this will mean that FDI is discouraged from the country due to the high taxation imposed, consequently limiting long run economic growth in the future due to a decline in FDI.

    I think thats all I would add but sounds good
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    (Original post by 260498)
    How would you conclude a reforms essay? After talking about economic zones, deregulation and access to credit?

    Posted from TSR Mobile
    Depends what you're arguing! I guess you could say something like:

    "Overall it is clear to see that Zambia is in need of supply side reforms in order to promote further long run economic growth and improve the overall prosperity of the country. However, this isn't without its problems and certain elements need to be addressed in order for these reforms to be effective and have success (e.g.....)"
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    (Original post by 260498)
    How would you conclude a reforms essay? After talking about economic zones, deregulation and access to credit?

    Posted from TSR Mobile
    depends on the question, "yes economic zones are beneficial in promoting development............ but the government must ensure that safe working practices are put in place to prevent exploitation of......................." You should check mark schemes for ideas
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    (Original post by jessparhar)
    Hi guys does anyone know how to tackle this question : "discuss the challenges to Zambia's long run economic growth potential"
    You basically want to talk about the challenges to their long run economic growth as laid out in Extract 5 e.g. poor infrastructure, poor access to credit etc. etc.

    Then you say why these things are bad

    Then say how you would correct them

    Its basically a supply side reform question
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    The drawback to economic zones is that it can create a dual economy. As firms are now only motivated to set up in the capital ( assuming the economic zone works). This is will lead to regional poverty and inequitable distribution of income.. blah blah. Can a possible solution be that govt of Zambia should set up different economic zones in different areas of the country?
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    Does anyone reckon a comparative advantage question will make an appearance?
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    (Original post by keynes24)
    depends on the question, "yes economic zones are beneficial in promoting development............ but the government must ensure that safe working practices are put in place to prevent exploitation of......................." You should check mark schemes for ideas
    For economic zones issue, can a possible solution be to set more economic zones in other parts of the country?
 
 
 

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