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Chapter 22: Problem 1

Briefly describe three government policies that can increase economic growth.

Short Answer

Expert verified
Three government policies that can promote economic growth include Monetary Policy, where the central bank controls money supply and interest rates; Fiscal Policy, involving use of tax policy, and government spending; and Legislative Policies that regulate business environment, labor laws, and competition amongst others.

Step by step solution

01

Policy 1: Monetary Policy

Monetary policy is the method by which a country's central bank controls the supply of money, often targeting inflation or interest rate to ensure price stability and general trust in the currency. By tweaking interest rates and purchase or sale of government bonds, the central bank indirectly influences the overall demand. This can increase (or slow down) economic growth. The control of inflation and stability of currency enables businesses to plan and invest, leading to economic growth and job creation.
02

Policy 2: Fiscal Policy

Fiscal policy refers to government's use of tax policy, government spending, and budget control. It's a policy method that can stimulate or slow economic growth. For instance, by lowering tax rates, the government can ensure that businesses and consumers have more disposable income. The consequent increase in demand for goods and services can stimulate economic growth. Similarly, government spending on infrastructure creates jobs and stimulates economic growth.
03

Policy 3: Legislative Policies

Legislative policies include laws and regulations concerning probusiness environment, labor laws, tariff and trade policies, property rights and laws promoting competition. These policies determine the business environment within a country. A stable and business-friendly environment attracts investments, fosters innovation, and leads to job creation - all these factors contribute to economic growth.

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