Question

What can a government do to promote long run economic growth? Explain each fully.

Answer 1

1)

Economic growth refers to the sustained rise in GDP of country. Over the long run, economy is at full employment level. If government wants to increase growth rate over the long run, it has to increase productivity of factors. or Technological change is critical to get higher growth rate over the long run.

Change in technology or rise in per capita availability of capital will shift aggregate supply of country to right. In other words, change in technology increases production capacity of country. Following steps could be taken by the government to increase output level:

• Promoting technological development and innovation.
• Increasing investment in infrastructural development.
• Using expansionary fiscal and monetary policies to push up aggregate demand.