How It Affects Economic Growth

Topics: Inflation, Economics, Macroeconomics Pages: 4 (1502 words) Published: January 18, 2013
Final Essay
In my opinion, supporting and promoting IT investment is one of the best ways to promote economic growth and stability with minimal side effects such as inflation, and easily overcome hurdles like unequal income distribution. While I don’t think you can really influence people’s personal ownership of computers, I do believe that offering tax incentives for IT investment and development will increase overall GDP, lower unemployment, and ensure an economically stable future.

First and foremost, investment towards information technology increases productivity, and makes workers more efficient in what they do. With more resources such as faster word processing, 3D Model Rendering, and instantaneous transfer of data over the internet, laborers in every facet of the economy benefit from technology and enjoy greater productivity as a result. This increase in productivity means more products and services are produced with less time invested, and this means that Gross Domestic Product can go up. Furthermore, GDP is often defined as a function of both Capital and Labor. It is widely acknowledged that GDP growth can be measured by K/L, or Capital divided by Labor. Clearly, then, if each worker is using a higher value of capital (here in the form of fancier computers etc), then GDP is sure to go up. The concern then becomes, “what about inflation?” Surely, if GDP goes up, inflation will follow, no? Not quite. The accompanying graph gives us a rough idea of why. This increased efficiency will shift the Philips curve inward, meaning that for every unemployment rate, there is less inflation. More IT investment will mean that we will require more service technicians, troubleshooters, software programmers, etc, and we will see unemployment go down. Also, with more children learning about IT, they will also be more likely to get jobs when they grow up. When unemployment goes down, though, we typically see that there are less available “desperate” workers, and thus...
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