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Question 1 Raising productivity is important for unlocking the economic potential of a country.

Discuss your views on the above statement.

Productivity in economics means a tool to measure effectiveness relating to a quantity or quality of output to the inputs required to produce it. It is most commonly used to measure labour productivity, which is can be measured by quantity of output per time spent or numbers employed. Productivity can be seen not only as a measure of efficiency but also as an indicator of economic development.

Many factors affect productivity. Some general categories for these factors are the quantity and quality (productivity) of labour force, capacity, raw materials and the technology.

Quantity of labour force has a direct relationship with the quality (productivity) of the labour force, hence contributing positively to economic growth. Therefore, rising in human capital attainment among the population is by means to achieve higher competitiveness through increasing workers efficiency and producing better quality products at cheaper production cost. Improving the quality of the labour force by investing in training and development enhanced the output growth due to ability to use technology and will be achieved at a higher rate than the labour force growth.

High capacity in capital stock (money and assets) leads to high purchasing power in the economy. With the capability of high purchasing, it increases in the amount of machinery; latest technology, factories and infrastructure, all make labour more productive. In term of industries, high capacity in assets can let you hire more employees with a better minimum wage (lead to higher motivation to work) thus increasing productivity and it even may let industries to enter a new market to invest.

Raw materials are the basic materials from which goods and products are made. In economics, it is the factor market because raw materials are the main services of the factors of production along with labour and capital. Raw materials are so important to the production process that the success of a country's economy can be determined by the amount of natural

resources the country has within its own borders. Countries such as China, Middle East and Russia that has abundant natural resources does not need to import as many raw materials from any countries, and has an opportunity to export the materials to other countries. In term of productivity, with high inputs where raw material are relatively at a lower cost and other condition (high human capital and advancement of technology), it will lead to high output in the short period of time, therefore it leads to a high economic growth. Using technology to maximize the countrys productivity creates the platform to realize true economic success. Countries are maximizing the benefits by combining the old and new technology, which automate most of the processes in reducing lead time. Changes in technology are the only source of permanent increases in productivity, but a number of transient factors can affect both true and "measured" productivity. For example, workers in manufacturing industries may work harder during periods of high demand and firms may use their capital assets more intensively by running factories for extra shifts; both factors can lead measured productivity to be too high relative to actual technological progress. Increasing the factors above leads to increases the countrys economy. For countries such as the South America, India and China, productivity is much higher in other regions due to high human capital with low minimum wage and high outputs. In the era of knowledge-based economy, the role of human capital is becoming more important. It is theoretically believed that human capital is associated positively to labor productivity, hence increase its efficiency and the growth of the economy. Therefore, this theory must support with the utilization of more advanced technology. In this respect, again human capital investment becomes relevant to produce more skilled manpower as needed by the sophisticated technology. The technical innovation, which undertaken through utilizing more capital, however needs large number of labor force with higher education. Therefore education is important as indirect means to promote the growth of the economy.

Valentino Piana, 2001. Productivity. Economics Web Institute, http://www.economicswebinstitute.org/glossary/prdctvt.htm#rel. [18 May 2013]

SPRING Singapore (2011): A Guide to Productivity Measurement, Singapore: SPRING Singapore.

Raising productivity key to unlocking China's economic potential, Ernst & Young, http://www.ey.com/CN/en/Newsroom/News-releases/2012_raising-productivity-key-tounlocking-China-economic-potential. [18 May 2013]

Question 2 The government should play an active role in solving the unemployment problem in an economy. Do you agree with the above statement? Please explain your view.

Unemployment is present in every society. A normal person thinks about unemployment as someone who wants to get a job but who cannot get one. Economist tends to think that unemployment is a factor of production being underutilised which results in loss of production, incomes and human capital. There are 3 types of unemployment, frictional, structural and cyclical. Regardless of what is the type, there are always people are unemployed, and resources (land, infrastructure and inventories) are being underused. The elimination of the unemployment is one of the goals of macroeconomics in which the government should play a role in it. It suggested that unemployment occurs when there is not enough demand of goods and other economic factors related to it. Therefore, government policies such as fiscal policy in purchasing goods and services in times of unemployment would encourage it to fall. Here are some factors in which government should play their role to solve and reduce unemployment. The government intervention in the public sector is best ways to create job, as it does not involve taxpayers to produce these jobs. This is where the government and their agency (such as National Environment Agency, National Parks Board and Land Transport Authority) hire more people to do various things. In term of public sector, it targets jobs where there are generally in productive areas where there is a demand market. It can help to spur private sector by making it cheaper to hire someone by reducing employer taxes, giving employment subsidies and financial assistance. The government can help in the area of education and training. Subsidizing the cost of training and education motivates the individuals to train themselves into being the right person for the right job. The aim is to give the long term unemployed new skills which enable them to find jobs in developing industries. The government can help in aiding and preparing the graduates and school leavers into the workforce by having educational seminars and career expo. However, despite providing education and training schemes, the unemployed

may be unable or unwilling to learn new skills. At best it will take several years to reduce unemployment. When the economy experience a downfall and large numbers of workers are made unemployed, the government should provide huge resources at individuals willing to take the risk by setting up new small businesses, in the hopes that some of these companies will succeed. The government also needs to court more of the foreign investors and expatriate as foreign direct investment to help boosting the local businesses. The government might consider looking into control the power of the trade union. If the unions are able to bargain for wages above the market clearing level, they will cause real wage unemployment. In this case reducing minimum wages will help solve this real wage unemployment. One factor to improve the country economy, the government should look in the fiscal policy. British economist John Maynard Keynes (1948) quoted that increasing or decreasing revenue (taxes) and expenditures (spending) levels influences inflation, employment and the flow of money through the economic system. Expansionary fiscal policy, designed to stimulate the economy, is most often used during a recession and times of high unemployment. This might include increases in government capital spending or lower direct taxes to boost disposable income. Many governments during the downturn have turned to fiscal policy as a way of creating new jobs; some economists refer to such programmes as providing non-productive job. This is the state functioning as the last resort. There are other factor does not need the government intervention such as emigration. When an individual leaves the country for overseas job or training, this will reduce unemployment. Individuals can make a better life for themselves abroad that they made at their homeland. They can contribute both to the new country they live in and also sending money home. For examples, in Philippines, the government have been promoting and supporting labour migration since mid-1970s to reduce it unemployment within the country itself. Since then, 2.9 million Filipinos are scattered around the world where they lead a better life if compared to staying in their own country and sending in money over six billion dollars in 2001. Migrant workers can return home after some time, bringing with them the experience and the skills they have learned abroad. With these sets of skills, it adds value to their wages and the overseas influences as well as enriching society.

In contrast, the government control the unemployment rate helps to keep the rate of inflation down since high unemployment can lower the bargaining power of workers to bid for higher pay. There might also be an environmental gain if unemployment is linked to a slower rate of growth of consumption and production, reducing the pressures on scarce non-renewable environmental resources. However, it is the responsibility of the individual to keep themselves more employment in the long run.

Chad Brooks (2012): What is fiscal policy? Business News Daily, Money and Finance, November 28 Kevin O'Neil (2004): Labor Export as Government Policy: The Case of the Philippines, Migration Policy Institute Nariman Behravesh (2009): Spin-Free Economics,1st edition, USA: McGraw-Hill eBooks