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This Is How Money Helps To Build Your Country



The Gross National Product (GNP)

The Gross National Product (GNP) is a measure of how wealthy a country is. There is an easy way to look at this equation. Once you add money spent by the average citizen (C), investment spending – such as businesses spending on machinery to produce goods (I), government purchases (G) and net exports to other countries (NX) you would end up with the overall GNP. In an equation form, C + I + G + NX = GNP.



The Role Money Plays

There are four ways in which money plays a role in building the economy, and therefore the

country as a whole. Firstly, money would be necessary to help pay for goods and services in a

way that the bartering system would not be able to satisfy – especially in a growing economy

where the production of goods and the need for cash transactions would increase. This then

leads to investments. In the old bartering system, excess goods left over after trading with others were seen as both savings and investments, but in our modern society we find that households do more saving, while businesses focus more on investing. This means that money is needed for both saving and investing, separately.


Thirdly, when a country’s monetary gain is low, the ability of the government or bank to print new money through its investments allows cash to be spent on industrial or agricultural works. These, if successful, can help to replace the money that was spent and will provide resources that can further drive the economy. Lastly, a country may have some sectors that are not necessarily monetized, such as its people. Spending money enables the country to make a profit from these sectors. An example would be countries in colonial times that monetized their lower class citizens for farm work and industrial efforts, leading to an increase in exports, imports and agricultural development.


The Effects of Tax Cuts

Boosting a country’s earnings can happen by lowering taxes for those in the lower income earning brackets of society. In a study done by the National Bureau of Economic Research, it was found that lowering taxes for the rich did not have as much of an effect as lowering taxes for those who earned less.


This will lead to conversations about who should pay less or more taxes, as governments decide between taxing citizens based on how much they earn and taxing everyone the same amount in general. If taxation is based on what you earn, the lower earners may stand to see some benefit in terms of saving money; but if everyone is taxed the same amount, the rich would save more money.



The Magic Formula

It is said that a country can grow rich by using a ‘magic formula’ - low taxes and stable money. For proof, one can look at the economies of the U.S. from 1870-1914, the 1920s and 1950-1970; the Soviet Union in the 1950s and 1960s; and Japan in the 19 th century. The idea is that, with low taxes and more income, there is more faith in the government and it becomes easier to own and maintain businesses, which can increase disposable income for each citizen and increase the country’s wealth. Otherwise, the result will be corruption, bribery, political instability and the decay of social institutions and services (like education and medical care) that have become widespread and commonplace in most modern countries today.



The Takeaway

While money is simply printed pieces of paper and minted coins, it drives an economy that needs its value to mandate many modern types of transactions from the home to the government level. The amount we are able to save and invest after taxes and overhead costs will drive how much we can spend otherwise, and the more lower income-earners are able to have their taxes reduced is the more growth can be experienced in a country’s economy – therefore, building the country.



Sources

1. Richard Cloutier, “How Tax Cuts Affect The Economy”, Investopedia.com (June 30, 2021)

2. Supriya Guru, “Role of Money in Economic Development of Developing Countries”, Yourarticlelibrary.com

3. Nathan Lewis, “How Do Countries Grow Rich? It’s Much Easier Than You Think”, Forbes.com (February 14, 2013)

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