Aggregate Supply(Productive capacity of an economy) and Aggregate Demand are impact by the populationg growth.
Impact on AS (Aggregate Supply)
Population growth makes more people available to work and to produce output although there is a lagged response.
Eg: High birth and death rates in China in the 1930s and 1940s led to fewer people looking for jobs in the 1950s.
Eg: Fall in Death rate and rise in borth rate in the 1950s led to number of people reaching work age beginning to rise sharply in the late 1960s and 1970s.
Impact on AD (Aggregate Demand)
Population growth affects patterns of demand and investment.
Societies with low levels of per capita income spend more on consumption than on investment.
*The faster the population grows, the more investment needed to simply maintain the existing average level of capital per member of the workforce.
Therefore, the demand for capital widening increases instead of the demand for capital deepening.
Capital Widening: Keeping per worker availability of capital constant
Capital Deepening: Making available more capital per worker
Therefore, the output per man hour may not rise which inhibits growth.
Watch more on how this affected China in the video below:
As the most populous country in the world with one fifth of the wolr’d population, China reached its peak of the population growth in 1960s. Thereby, until recent, the food production, agriculture and economic growth rates were not much higher than population growth in China. So, the effect of population growth was strongly felt.
With China’s mortality rate been 7.15 per thousand in 2012 and its fertility rate been 12.1 per thousand in the same year accompanied by 18% of its population been migrants are statistical information that clearly states that Chinese population growth rate is risking its economy.
However, the above situation was not led in a day or two, rather due to years of impact and activity. For instance, in mid 1960s China faced a surge in population growth leading to large numbers of young people of marriageable age making it difficult to cut down the fertility rate in the second half of the 1980s. This clearly teaches the policy makers that they must take a long term view of the relationship between population size and resources. This is especially important for two reasons:
- Population growth rate depends on mortality, fertility, migration and age structure.
- Higher the dependency ratio, higher the demographic investment, limiting the pace of economic growth,
Watch more about this below:
- The use of the word
Often candidates in Economics exams, they often say that things will happen and we have an example here; the lowering of taxes will lead to a rise in GDP and unemployment will therefore fall. We can’t assume these things.
For example, lowering taxes could lead to a rise in GDP. All the things in the economy might happen to lead to a fall in GDP, so we can’t be 100% certain that things will actually always happen. So, we should really change the sentence to lowering taxes should lead to a rise in GDP, and unemployment could possibly fall or is likely to fall. This shows a lack of understanding of the economy; not everything, a certain. 99.999% at the time all factors are not held the same. So, nothing can be presumed.
- The use of examples
So, the second mistake often people make is by drawing a diagram and then they give little or no explanation on the diagonal; just throw it in there, you will usually get little credit for this.
So, we’ve gone through about always being precise and also don’t always assume that some fingers demand or supplied normally as is here. Often things are supplied very inelastically. So, for example the supply of wheat is inelastic if demand for the week goes or not. A whole lot of weeks can be supplied because it takes a long time for that. Week to actually grow so you need to consider the elasticities when drawing your supply and demand curves.
Try to avoid rambling through large blocks of text. Often a lot of candidates see a question and then they go off on a large tangent about things that generally interest them but they aren’t actually answering the question. So, for example, a quick question here explains the reasons for the growth in GDP. So, start by answering the question, why one reason for a growth of GDP is because this and specifically honed in on the question and therefore you’re sort of answering the question and then the examiner can’t help.
We’ll give you marks. Also, remember if it doesn’t answer the question, you won’t gain any credit. So, you might be going against some really complex in-depth analysis of something. But, it’s not linked to the question. The examiner can’t reward you lastly.
One mistake that some candidates make is by being too controversial or biased. Avoid presenting radicals, socially transforming ideologies such as Marxism. In your essays, even if you think that they’re correct in under 40 minutes, you’ll probably not going to be able to find the time to justify your argument fully, and also there are some other reasons for avoiding going down. The route of becoming too radical. You probably won’t be answering the question directly. So, you’ll be rumbling on for a topic that doesn’t directly link the question as previously discussed and you could also lead the risk of the examiner disagreeing with you in agitating him and he could mark you harshly and you need to remember that they’re only human.
There’s something that annoys them subconsciously, they could more. You doubt one to two marks for something that they don’t agree with you how hardline. So, always try to give both sides of the argument. You probably haven’t considered your argument fully.
Remember you’re only an old student, you’re not a Ph.D researcher. So, don’t try and get too ahead of yourself.
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