Heather Sanders: Economics Essay

Topics: BusinessIndustry

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Last updated: April 20, 2019

During 1990-1995, average percentage growth in Ireland was around 4.5%.

This grew to around 8.3% between 1995 and 2000. Over a small period of time, the average percentage growth within Ireland nearly doubled.However over a course of four years, between 1997 and 2000, the percentage change in GNP (Gross National Product), which is what annual percentage growth is measured in, changed somewhat. Between 1997 and 1998, the percentage change in GNP fell from 9.4% to 7.

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9%. Then from 1998 onward to 2000, the percentage change in GNP gradually rose to 10.4%, which is higher change then what was the original figure for 1997. This indicates improvement within the Irish economy and thus, growth.Explain three factors that have contributed to the rapid growth of the Irish economy.” 10 marksThe three main factors that contributed to the growth of the Irish economy were …

* The increase in government spending within the economy* The creation of a multiplier effect amongst Irish labour* The creation of incentives for both Irish industry and workersThe increased government spending for the Irish such as improved access to the EU market, increased foreign investment in the country and the increased Irish productivity due to investment in more human capital, sparked off a new confidence within the economy and thus increased spending, which in turn starts a multiplier effect. Increased government spending also increases the aggregate (overall) supply within the economy. This means that prices are cheaper and employment is increased within the economy, as there was a problem in Ireland at the time, where there was not enough work available for the amount of requesting available labour.The creation of a multiplier effect made way for increased public spending and thus, growth throughout the economy instead of it being confined to one individual industry. As there was more labour created for female workers, who are stereotypically the main spenders within the average household, this gave families increased disposable incomes, therefore they went out and spent more. This meant that money went into other businesses throughout Ireland and therefore growth spread across the entire economy as those businesses spent money elsewhere, and so on and so forth.The creation of competitiveness amount Irish companies allowed them to expand and be more involved in other areas such as the EU markets. This led to increased demand from other economies other than the Irish, which then again, led to the need for more production and thus employment.

This gain links back to creating the multiplier effect but it also links to increased profits from overseas which brought money back into the country.”Assess all the possible effects of a continuation in the rapid growth of average wages for the performance of the Irish economy.” 20 marksAn economy, such as the Irish, can start to grow at an astonishing rate to begin with. But as the economy evolves and improves, the rate of growth starts to decrease due to the economy passing a threshold of extent to which the economy can evolve. Was the economy reaches this point, where wages and prices are high, there could be an effect of where customers are unwilling to purchase Irish goods as they are far too expensive, and could be bought elsewhere at a cheaper price. This means there is decreased export from Ireland and thus company profits fall and either the companies have to drop their prices to compete with other providers and loose even more profits or make job cuts and raise unemployment levels, which in turn reduces consumer spending and thus a downward multiplier.

As an economy improves, the amount of employment available also improves. With the introduction of more industries into the country and also overseas production, there is far more opportunities for Irish workers and to begin with labour productivity will be very high as moral and confidence within the work-place and workers themselves is at a high level. If there is high productivity, workers are paid more for their efforts and promotions become available, introducing healthy competition into the business as well as incentives for workers. This also brings about pay rises for workers, as prices throughout the economy rise with growth these need to be met within the pay packet.

This however only withstands the beginning of the company’s expansion and growth. As the company becomes bigger, communications between bosses and workers can break down and there can be a loss of incentives, meaning that productivity can fall. If this happens then companies can loose profits and if workers are still being paid the same amount as when there was prosperity for the company, then there will arise the issue of the company not being able to pay the workers with reduced company profits. They cannot reduce the worker’s pay, therefore they have to make job cuts, which in itself can spark of a downwards multiplier, of consumers having less disposable incomes which means there is less spending in other industry which again reduces their profits, and so on and so forth.

Also if the average wage packet continues to rise, workers are going to want to be paid for doing simple jobs that are low paid elsewhere in the world. This could be persuaded companies to move abroad to where workers do not seek to be paid high wages compared to the Irish workers, thus saving company expenditure and increase company profits. This means that there is a decrease in available jobs for the Irish workers, an increase in unemployment within the Irish economy and again this could spark of a downwards multiplier within the economy.

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