Macroeconomics for Business (5EC504)Coursework

Tutor name: Alexios MakropoulusStudent name: Vu Thanh BinhIntake: April 2015

Section 1Governments should aim to maximize happiness rather than Gross Domestic Product. Gross Domestic Product (GDP) is an estimate of market throughput, adding together the value of all final goods and services that are produced and traded for money within a given period of time. Typically, GDP is measured by summing up nations personal consumption expenditures, government expenditures, net exports and net capital formation. GDP was developed in the 1930s and has been commonly used as indicator of economic performance for many years. Thus, it becomes one of the most useful statistics in economics (Robert, Maureen, Stephen, John 2009). However, GDP has its limitations and problems that it has been criticized for showing only a limited snapshot of economic welfare and happiness.First, the relation between economic growth and the range of key economic and social objectives is poor in most of societies. Economic growth has been considered as the key variable in creating employment for many years. However, it shows that a high rate of economic growth hardly comes along with a high rate of employment growth. This is because of the demand for labor is reduced by significant change in technology. And actually, employment generates economic growth. Therefore, the creation of viable employment has higher priority than the objective of economic growth in any case. Besides that, works are not only a means of having income but also offering personal satisfaction and a source of self-esteems (Drudy 2009). Second, the market value of production is emphasized in GDP concept. However, there are goods and services not exchanged in the market. Therefore, GDP concept fails to take account of such goods and services. This is really problem in developing countries where many goods and services are produced in families or on farms for consumption rather than for trading. In addition to that, there are many unpaid works in subsistence agriculture of developing world such as caring old people and children at home (Drudy 2009). Third, the total GDP for a country or the average income per capita gives no indication of distribution of income because such an average is calculated from different levels of income. Therefore, generally a small percentage of the population procures high proportions of overall income, while a high percentage of the population remaining on very low incomes. In 1972, Bhutans King introduced Gross National Happiness (GNH) philosophy at an international conference (Gross National Happiness). Since then, great advance have been made in measuring happiness and happiness has become a potential substitute for GDP. Compare to GDP, happiness indicator is more complete as it includes set of social, environmental and health management. Besides that, happiness has predictable causes and is correlated to specific things such as wealth, income distribution, health and political institutions. And recently, there are more and more governments use happiness to measure the economic performance.

Section 2What policies and tools might help the UK government to promote economic growth in the long run Britain was on top of GDP per person in 1870 compare to United States, France and Germany. It fell behind in 1979 but the country bounced back after 1980 (figure 1). The revival was broad: many sectors, including manufacturing and distribution, contributed more to growth than did finance, even in the go-go years between 1997 and 2007. This is heartening, because it suggests recent successes can be built on. However, according to the report Britain is having issues related to education, infrastructure, investment and R&D. Thus, in order to promote economic growth in long run, UK government might need policies and tools to solve those issues. Figure 1

Education investment is an important factor of economic growth. The economic benefits of education to improve growth rates appear to be very large. A more educated society translates into higher rates of economic growth. Besides that, it is essential to have a skilled, educated and healthy workforce in order to build comparative advantage and deliver sustainable economic growth. Investment by all individuals, employers, and by the public sector in early years, school, further and higher education has a proven impact on the employability and productivity of all individuals and, in turn, growth. Learning and skills development is also vital to developing a more adaptable and resilient economy. Britain has comparative advantage in education with many universities are in worlds top universities like Oxford, Cambridge and a very good education system at any levels. However, Britain is facing issues related to qualifying teachers and improving the quality of teaching as well as building quality schools and winding down poor ones. A positive policy that is more flexible and rigorous in performance assessment would improve matters. In addition to that, it could put GDP of Britain on much steeper growth path if education policy lifts up school standards to German level. Long-term development of major infrastructure projects takes an important part in the promotion of long terms growth besides highly skilled workforce. Better infrastructure not only enables output to be transported at lower cost but also generate jobs and other positive externalities. Britain ranked 24th for quality of overall infrastructure. The issues related to infrastructure mostly lie in politics. Plans are often shredded when a new party comes to power. This reflects the inability of the political system to deliver cross-party consensus around strategic plans for infrastructure and stable policy frameworks to support their implementation. Therefore, UK governemnt should have a policy for infrasructure that strengthen the governance, strategic planning and finance of major infrastructure investment.Change in technology is one of key factors in promoting economic growth. And the innovation in technology is often created by research and development (R&D) activities. However, British spending for R&D has been going down. According to the Office National Statistics, UK R&D spending fell 3% overall in 2012 (British R&D spending down). In long term, the investment for R&D should target to increase and a new Infrastructure Bank would facilitate the provision of the stable long-term finance that the economy needs.Investment in equipment and new ideas are crucial engines of growth but UK investment is heavily skewed towards property and buildings, rather than equipment, innovation and new technologies. Moreover, British investment rates are low because of problems in the functioning of capital markets. The UK would benefit from a stable and coherent policy framework to encourage long-term investment and thereby generate higher productivity and increased prosperity. ReferencesGross National Happiness.Available from: . [10 April 2015].British R&D spending down despite government's innovation strategy.Available from: . [10 April 2015].

Robert C, Maureen H, Stephen P, John T 2009, Beyond GDP: The Need for New Measures of Progress, no .4, pp. 3Drudy P.J 2009, Beyond GDP: 1 What is prosperity and how should it be measured?, pp. 2-4

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