Government Policies and Economic Growth

As a society, our living standard depends on the ability to produce goods and services (Mankiw, 2012). The ability to produce these goods and services depends on several factors, including physical capital, human capital, natural resources, technology (Mankiw, 2012). The government plays an important role in economic growth. They affected the growth rate by implementing many government policies. These policies not only affect the economic growth rate but also play an important role in daily life.

In recent years, society has witnessed a change in government policy that contributes to economic growth. Decades ago, government policy was specially designed to ensure military and defense capabilities. However, this approach has been abandoned and the current government's policy is to ensure economic development. Therefore, changes in policy have brought about rapid economic growth. However, the growth of global participants has not been experienced at the same rate. A region can develop the economy faster than other regions. In areas with poor economic growth, the unemployment rate remains high. In the following section of this article we will evaluate the relationship between high unemployment rate and slow economic growth.

The government adopts fiscal policy to promote economic growth, low unemployment rate, stable economy. When the economic growth rate is low, the government tends to cut taxes, and spending may increase to stimulate economic growth. When the economic growth rate is high, if the government raises taxes to cut expenditure and prevent the economy from growing rapidly, there is a possibility that adverse influences such as high inflation rate may occur. What is the position of fiscal policy? Neutral fiscal policy is usually implemented when the economy is in balance. Government spending is completely covered by taxes and the overall budget outcome has a neutral influence on the level of economic activity. Extended fiscal policy usually involves government expenditure over taxes during the economic downturn. If government expenditure is lower than tax, it will generate contractual fiscal policy.