Evaluate supply-side policies using productive capacity, incentives, productivity, employment, growth, inflation and distributional effects.
Study the following extract and answer the questions that follow.
The World Bank reports on economic growth in Kenya
(1) The World Bank's recent overview of Kenya has given a positive assessment of Kenya's growth prospects, based on domestic and international factors. The East African nation of Kenya has a population of approximately 46.1 million, which increases by an estimated one million per year. The World Bank projected 5.9 % economic growth in 2016, rising to 6 % in 2017. This positive outlook is based on continued low oil prices, growth in the agricultural sector, expansionary monetary policy and ongoing infrastructure investments.
(2) The World Bank has identified other key contributing factors to Kenya's short-term growth. These include an expanding services sector, higher levels of construction, currency stability, low inflation, a growing middle-class and rising incomes, a surge in remittances (money sent by a foreign worker to their home country) and increased public investment in energy and transportation.
(3) Tourism, information and communications and public administration are among the sectors that have registered the highest growth. Inflation has been at an average of 6.3 %, which is within the Kenyan central bank's target range.
(4) The World Bank also predicted that, of 82 countries investigated, Kenya would have the highest long-term growth and that its real gross domestic product (GDP) in 2050 should be seven times larger than it is today. Fast population growth, a modest improvement in the business environment, urbanization and fast-growing neighbouring countries are all contributing factors to the positive prediction.
5 While the growing Kenyan economy is creating more jobs now than in the past, these are mainly in the informal services sector and are low productivity jobs. 9 million young people will join the labour market in the next 10 years. Given the scarcity of formal sector jobs, they will continue to find jobs in the informal sector. These jobs are usually in very small businesses, often run from homes.
(6) The World Bank suggests that there is a need to increase the productivity of jobs in the informal sector. It says that this could be achieved by increasing work-related skills through training schemes, increasing communication and learning between formal and informal firms, and helping small-scale firms to become suppliers for firms in the formal sector. To create more and higher-skilled jobs, it is also essential to reduce the cost of doing business.
(7) According to the World Bank, Kenya has made significant structural and economic reforms that have contributed to sustained economic growth in the past decade. However, economic growth does not always mean economic development. The main development challenges facing Kenya include poverty, inequality, climate change, low commodity prices and the vulnerability of the economy to internal and external shocks. 7 March 2017; Kenya in 2050, The Economist Intelligence Unit, https://www.eiu.com/public/topical_report. aspx?campaignid=ForecastingTo2050, 13 July 2017, data reused by permission of The Economist Intelligence Unit; and World Bank economic updates, Kenya's Economy Strong in a Challenging Global Environment, http://www.worldbank.org/en/country/ kenya/publication/kenya-economic-update-economy-strong-challenging-global-environment, March 2016.]
Define the term productivity indicated in bold in the text (paragraph (5).
Table 1 provides information about Fairland.
Table 1
State two interventionist supply-side policies that are likely to increase the demand for low-wage labour in Fairland.
State two market-based supply-side policies that are likely to increase the supply of labour in Fairland.
Government economists have estimated that citizens of Fairland spend 10 % of any additional income on imported goods and pay a tax rate of 20 % on every extra dollar of income. The marginal propensity to save for Fairland's citizens is 10 %.