Question

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth

Answer 1

Incentives to invest for new businesses and good institutions help in achievement of economic growth. Incentives refer to creation of interest in economic activities. For instance, tax breaks on investment in crucial sectors, can create incentives for investing in those sectors. Similarly, subsidizing inputs of production can increase investment in that area, mostly characteristic of agriculture. Institutions like the institution of law, property rights, and fair administrative institutions also improve consumption and investment activities. More people will purchase a house if they are ensured of their property rights. Similarly, the rule of law makes contracts enforceable so that people make contracts among themselves. These activities increase consumption and investment in the economy, leading to economic growth.