Economic Development And Economic Growth

915 WordsFeb 8, 20154 Pages
To what extent should government in developing countries pun inequality in the policy agenda? High and sustainable economic growth is the main condition for the sustainability of economic development and increase prosperity. As the population increases each year, the consumption is also increasing. Further more, demand, supply and population growth also require employment growth as a new source of income, because if not so then economic growth will lead to poverty. Many economics literatures review the correlation between income inequality and economic growth and the results show that inequality negatively affected economic growth (Boushey and Price, 2014). Moreover, Ravallion (2014) argued that, particularly in developing countries, initial inequality and changes in inequality in the period of economic development influence economic growth. Economic growth can be derived from the growth in aggregate demand and aggregate supply. For that reason, income inequality should be at the forefront of many developing countries’ policy agenda, and this essay, on the other hand, focuses on how inequality in income affects economic growth, particularly in the aggregate demand side. According to Oxford Dictionary of Economics (2009), aggregate demand is define as the total of intended attempts to spend on final goods and services produced in a country. Aggregate demand further described as the sum of consumption, investment on capital, government spending, and net exports (McCormick,

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