TOPIC 3  (Continued)

What you really need to know to optimise your operation

It’s particularly sensitive to macroeconomic inconsistencies (Continued from previous page)

Fiscal policy

Fiscal policy is the use of government's revenue and expenditure as instruments to influence the economy. Examples of such tools are expenditure, taxes, and debt.

For example, if the economy is producing less than potential output, government spending can be used to employ idle resources and boost output. Government spending does not have to make up for the entire output gap. There is a multiplier effect that boosts the impact of government spending. For instance, when the government pays for a bridge, the project not only adds the value of the bridge to output, but also allows the bridge workers to increase their consumption and investment, which helps to close the output gap.

 

The effects of fiscal policy can be limited by crowding out. When the government takes on spending projects, it limits the amount of resources available for the private sector to use. Crowding out occurs when government spending simply replaces private sector output instead of adding additional output to the economy. Crowding out also occurs when government spending raises interest rates, which limits investment. Defenders of fiscal stimulus argue that crowding out is not a concern when the economy is depressed, plenty of resources are left idle, and interest rates are low.

 

Fiscal policy can be implemented through automatic stabilizers. Automatic stabilizers do not suffer from the policy lags of discretionary fiscal policy. Automatic stabilizers use conventional fiscal mechanisms but take effect as soon as the economy takes a downturn: spending on unemployment benefits automatically increases when unemployment rises and, in a progressive income tax system, the effective tax rate automatically falls when incomes decline.

Economic development

Is the process by which the economic well-being and quality of life of a nation, region or local community are improved. The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for centuries. "Modernization", "Westernization", and especially "Industrialization" are other terms often used while discussing economic development.

Whereas economic development is a policy intervention endeavor aiming to improve the well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out, "economic growth is one aspect of the process of economic development".

Community competition

One unintended consequence of economic development is the intense competition between communities, states, and nations for new economic development projects in today's globalized world. With the struggle to attract and retain business, competition is further intensified by use of many variations of economic incentives to the potential business such as: tax incentives, investment capital, donated land, utility rate discounts, and many others.

Additionally, the use of community profiling tools and database templates to measure community assets versus other communities is also an important aspect of economic development. Job creation, economic output, and increase in taxable basis are the most common measurement tools. When considering measurement, too much emphasis has been placed on economic developers for "not creating jobs". However, the reality is that economic developers do not typically create jobs but facilitate the process for existing businesses and start-ups to do so. Therefore, the economic developer must make sure there are enough economic development programs in place to assist businesses achieve their goals. Those types of programs are usually policy-created and can be local, regional, state-wide and national in nature.

 

Opportunity management

Opportunity management (OM) has been defined as "a process to identify business and community development opportunities that could be implemented to sustain or improve the local economy".

Opportunity management is a collaborative approach for economic and business development. The process focuses on tangible outcomes. Opportunity management may result in interesting and motivating projects that help improve teamwork. Its three components are:

  1. generating ideas,

  2. recognizing opportunities, and

  3. driving opportunities

Acknowledgement to Wikipedia for information used in this important Topic.

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