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Chapter 20: Q. 6 (page 495)

What policies can the government of a free-market economy implement to stimulate economic growth?

Short Answer

Expert verified

Demand-side policies or/and supply side policies.

Step by step solution

01

Step1. Introduction

Demand-side policies are the policy by which the aggregate demands of an economy is increased or decreased.

Supply-side policies are the policy by which the aggregate supply of an economy is increased or decreased.

02

Step2. Explanation

To stimulate economic growth the government of a free market economy implements a policy under which tax rates are decreased or money supply in the economy is increased due to which aggregate demand curve shifts rightward or upward and to make aggregate supply curve shift rightward or upward the government gives free trade agreement, privatization, tax exemption, etc. due to which productivity increases and economic growth are achieved.

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Most popular questions from this chapter

Education seems to be important for human capital deepening. As people become better educated and more knowledgeable, are there limits to how much additional

benefit more education can provide? Why or why not?

Change in labor productivity is one of the most-watchedinternational statistics of growth. Visit the St.Louis Federal Reserve website and find the data section (http://research.stlouisfed.org). Find international comparisons of labor productivity, listed under the FRED Economic database (Growth Rate of Total Labor Productivity), and compare two countries in the recent past. State what you think the reasons for differences in labor productivity could be.

Say that the average worker in the U.S. economy is eight times as productive as an average worker in Mexico. If the productivity of U.S. workers grows at 2% for 25 years and the productivity of Mexico’s workers grows at 6% for 25 years, which country will have higher worker productivity at that point?

Describe some of the political and social tradeoffs that might occur when a less developed country adopts a strategy to promote labor force participation and economic growth via investment in girls’ education.

Assume there are two countries: South Korea and the United States. South Korea grows at 4% and the United States grows at 1%. For the sake of simplicity, assume they both start from the same fictional income level, $10,000. What will the incomes of the United States and South Korea be in 20 years? By how many multiples will each country's income grow in 20 years?
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