Chapter 21, Problem 1P

To determine

What are the trade-offs  between equity and growth.

Explanation of Solution

There are many possible measures that a president of a small country can take to bring the country into the forefront. Economic development happens through human development of the economy. Human development thus is an important duty of the government. This includes providing better and cheap health care to its population, better education, as well as better working conditions and working classes.

When a president determines to reduce the inequality of income distribution in the economy, there will be a trade-off in the economy. This trade-off will be between inequality and growth. When a president decides to reduce the inequality, it has to reduce the growth aspects but in turn, it will increase the health care costs of the government and lower the concentration given to the growth aspects; there will be loss in the workforce of the economy. As a chain reaction to the loss of workforce, there will be a decline in the productivity of the economy. The lower productivity leads to lower outputs and lower levels of investments in the economy. Thus, the economy would face a savings and investment uncertainty situation when bringing in equality.

Economics Concept Introduction

Money: Money is anything that the society accepts as a payment for the goods and services exchanged in the market. It can be in the form of currencies, coins, or any other items that the society is willing to accept in exchange.

Poverty: Poverty is the lack of a certain minimum amount of money that is required to live a healthy life by an individual.