Question

· List 2 specific policies that the government could use to boost growth by increasing the capital stock per worker (K/E).

· List 2 specific policies that the government could use to boost growth by increasing the level of technology (A).

Answer 1

Two policies that could be used to boost the capital stock per worker could be: 1) An expansionery monetary policy that would lower interest rates and so encourage investment and hence this would increase the capital stock and hence the capital stock per worker. 2) The government can also provides grants that encourages investment and hence increase the capital stock per worker.

Technology can be improved upon by: 1) Increasing the level of research and development thus ensuring that the level of technology improves. This will also create intangibles through patents and thus improve processes. This will increase the output per efficient worker and hence increase economic growth. 2) Technology can also be improved by importing processes from abroad. This will improve technology at home.