Economic growth is often studied in macroeconomic terms, but in market economies, who makes the decisions that lead to growth? What kinds of decisions and what kinds of actions cause growth to...

Economic growth is often studied in macroeconomic terms, but in market economies, who makes the decisions that lead to growth? What kinds of decisions and what kinds of actions cause growth to occur? How might a detailed study of individual markets be relevant to understanding economic growth?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In a true market economy, only the decisions that are made on the microeconomic level would affect economic growth.  However, there are no purely market economies in the world today.  The economies that we call market economies are actually mixed economies in which the government has a great deal of influence on economic conditions.  Therefore, in today’s “market economies,” both the government and individual firms make the decisions that can cause growth to occur.

In a market economy like that of the US, many government actions can affect growth.  The Fed, for example, sets monetary policy, doing things like changing interest rates.  The Congress sets policy on taxes and also passes regulations and funds projects that could help or impede economic growth.  Some of the government’s actions (monetary policy, tax policy) occur on the macroeconomic level and others (infrastructure projects, regulation of specific industries) are more on the microeconomic level.  However, all of these decisions are made by the government.

While the government is important, all of the decisions made by people who are running private businesses also have a tremendous impact on the potential for economic growth.  Businesses make decisions about how much to invest.  They make decisions about where to place their factories.  They make decisions about how many people to employ.  All of these decisions, made by thousands and thousands of businesses across a country, impact economic growth because it is these companies that are actually providing the jobs that make economic growth.

Because economic growth is driven in large part by the decisions made by people who run businesses, it can be important to understand individual markets.  If we understand individual markets, we might be able to see which actions by businesspeople lead to economic growth in those markets.  This would help us have a better understanding of how to make the whole economy grow.

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