Introduction
It is known that the economic growth largely depend on such index as demand growth. The issue of its stimulation or, in other words, aggregation plays vital role in the contemporary economic state of affairs, which is characterized as such ‘which is transitioning from the Great Recession to a period of more stable growth’ (Global Economic Outlook, 2015). The recent economic stagnation is said to be caused by the persistent effective demand failure depressing the economy’s productive capacity through cuts in investment and depressed technological progress (Pryce, 2015). The main target is to change this course to the opposite one, meaning to stimulate the contemporary demand in order to achieve long-term satisfactory result, namely economic growth.
Main Body
General steps which are advised to be made on the way of demand aggregation in the aspect of economic growth are as follows: reforms removing impediments to investment, business formation, and job creation, and reforms promoting investment by raising expectations of future growth (Pryce, 2015).
Additionally, it is suggested to implement the policy of lower global commodity prices consisting, in particular in lowering input prices for industry and fuel prices for households will provide a boost to aggregate demand and, consequently, global growth (ATKearny, 2015).
The former arguments are supported by current fall of prices in the field of global oil and other commodity prices. These phenomena are to cause the increase of consumers’ spending power which entitles them to purchase more, than during the previous period of recession (p.7). The other factor is to stimulate employment and, consequently, increase employment rate (p.10). The U.S. has, for instance, resolved this issue and aggregated the demand by increasing the provision of credit, increasing the stability in housing market, and improving worker mobility (p.10). Additionally, fiscal consolidation and stability have benefited the economic growth effect.
The current situation has led to the formation of two opposite views on account of the prospective growth. One predicts that the slowdown is temporary. Additionally, even the latest innovations and IT revolutions cannot stop it. It will be also negatively affected by such factors as demography, education, inequality, globalization, environment, and debt (OECD, 2015). On the contrary, the others emphasize on the fact that the rate of technological progress has not slowed and the IT revolution will continue to dramatically transform frontier economies (p.13).
The main source which can define the prospective economic growth, according to OECD research, is the capacity to innovate and to combine technological, human and other forms of capital with harness the power of digitalization to rapidly diffuse and replicate ideas (p.13). The innovation which does not slow the pace is the way how to stimulate both supply and demand. It is the source which could stimulate the consumers to purchase more, even at the global level.
Growth depends on four key factors. At first, global connections and international mobility of skilled labor has to be provided (OECD, 2015). Secondly, firms are to carry out so-called experiments trying to find out what is currently demanded and can become essential and necessary (p.13). Thirdly, the notion that there are still scarce resources has to be made and they are to be used rationally. The last point consists in the need to make synergic investments in skills and organizational know-how enabling the economies to absorb, adapt and reap the full benefits of new technologies (p.13).
Among the key short term steps to be made so as to reach the economic growth and aggregate demand, the following ones deserve mentioning: pro-competition reforms in the countries, where regulation is still restrictive, have to conducted; new technological discoveries have to be stimulated (OECD, 2015). These data have been proven by the statistical analysis which showed that every day about 25 % of consumer goods for sale are either new or will be discontinued the next year and at least 40 % of new goods are only sold for a single year (Gabler and Poschke cited in OECD, 2015).
China’s example has to be highlighted as well, since in context of the economic growth the former’s policy is of great importance for future development of the other states. The main factor leading to positive economic consequences is human capital accumulation with parallel increasing of labor participation (Zhu, 2012). Future China’s development is stated to depend on four main ingredients: labor participation rate, average human capital, capital/output ratio, and total factor productivity (p.17). However, the private demand is becoming weak nowadays because of increasing in government expenditure and narrowing trade deficits (Dew & Martin, 2011).
These factors determine China’s economic growth for more than 10 % yearly. Labor productivity as one of the main factors of economic growth is highlighted to be important in Weale’s speech (2015), who said that, despite the existing barriers (loss of confidence in business and legislative restrictions), labor productivity is a key elements of growth: it is the rate of total factor productivity growth divided by the share of labor in total income.
Endogenous growth theory proposes the multiple factors which could pretend to make the economy stimulated and the demand aggregated. Among the institutes which define the growth are skills and education, culture and cooperation and so on (Haldane, 2015). Also, this theory deals with the above-mentioned factor, namely capital dividing it into physical, human, social, intellectual and infrastructural ones (p.8).
Growth depends on the existence of all the kinds of capital. In context of innovations and IT, it is necessary, at first, to innovate, then, to find qualified and high-skilled employees who will be able to cope with these tasks; later, people’s trust to new product has to be obtained. All these factors are to be stimulated by investments and installments as well as involvement of new stakeholders.
Additional factor is the role of the government in economic processes. For instance, it is claimed that as much of public capital spending is procured from the private sector, the larger cuts in public capital spending may have had the effect of stifling private sector investment and hence adversely affecting innovation and productivity (Pryce, 2015).
All in all, macroeconomic models generally propose short-run strategies so as to aggregate demand. They are based on the belief that it will affect the economic growth in long-run rate. If neoclassical, new growth and Keynesian models are synthesized, the following potential strategic statements can be made: it is possible for income distributional improvements to increase the rate of economic growth, as well as for expansionary fiscal and monetary policy to have a positive effect on growth (Dutt, 2006).
Conclusions
The application of theoretical knowledge can benefit the prospects of demand aggregation which is among the main factors determining the economic growth. Certain concrete measures to be taken have been analyzed, in particular the tax burden is to be lowered and the innovations have to be stimulated so as to achieve the positive result in the nearest time.
References
ATKearney 2015, “Beyond the New Mediocre”, Global Economic Outlook
Dew, E, Martin, J 2011, “China’s Changing Growth Pattern”, IMF World Economic Outlook.
Dutt, AK 2006, “Aggregate Demand, Aggregate Supply and Economic Growth”, International Review of Applied Economics 20(3), pp.319-36.
Haldane, AG 2015, “Growing, Fast and Slow”, University of East Anglia
OECD 2015, “The Future of Productivity”
Pryce, V 2015, “Why Should We Care About Productivity?”, National Institute Economic Review 23, pp. 30-35
Weale, M 2015 “Prospects for Supply Growth in Western Europe”, Rijkuniversiteit
Zhu, X 2012, “Understanding China’s Growth: Past, Present, and Future”, Journal of Economic Perspectives 26(4), pp. 103-124
