Policies to Promote Economic Growth

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    Policies to Promote Economic Growth

    Short Run

    • If the economy is producing below full capacity, then expansionary fiscal or monetary policy can increase AD, and thus increasing output
    • The advantages of fiscal and monetary policy is that they can often both stimulate both AD and AS
      • Lowering the rate of interest will both stimulate consumption and investment, and it is the investment that will increase AS
      • Government spending on things like education can also move AS to the right.

    Long Run

    • For long-run growth to be achieved, the quality and/or quantity of resources has to increase
      • This is what SSPs tried to achieve
    • The measures that raise investment will therefore also raise AS

    Stable Growth

    • Most government want stable growth, and this is for actual growth to match trend growth, where the trend growth rises over time.
    • Governments will want to avoid AD increasing faster than the trend growth permit, as this will cause overheating with inflation in the economy and balance of payments problems arising
    • Governments will also prevent AD increasing slower than the trend growth rate, since this would result in a negative output gap.

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