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Chapter 7: Q.6 (page 185)

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

Short Answer

Expert verified

Policies that can be used to stimulate economic growth are demand-side policies or supply-side policies.

Step by step solution

01

Definition

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

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

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?

For a high-income economy like the United States, what aggregate production function elements are most important in bringing about growth in GDP per capita?

What about a middle-income country such as Brazil? A low-income country such as Niger?

An economy starts off with a GDP per capita of 12,000 euros. How large will the GDP per capita be if it grows at an annual rate of 3% for 10 years? 3% for 30 years? 6% for 30 years?

List some arguments for and against the likelihood of convergence.

What do the growth accounting studies conclude are the determinants of growth? Which is more important, the determinants or how they are combined?
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