5.7: Public Policy & Economic Growth

Question 1

What happens to the Aggregate Production Function when there is improvement in education and human capital?

Answer 1

It goes up

Question 2

What gov. policies most likely results in long-run economic growth?

Answer 2

1. Education/ training spending
   - increases human capital
2. Infrastructure spending-like roads , bridges and harbors
   
   • increases physical capital
3. Production/Investment Programs
   - increases physical capital
   - these are called supply-side policies

Question 3

Supply-side Fiscal Policy

Answer 3

gov. policies designed to increase production by reducing business taxes and or regulation

Question 4

Why is Supply-side fiscal policy controversial?

Answer 4

1. Providing taxes breaks to businesses might disproportionately benefit the wealthy.
2. It assumes corporations will spend tax cuts on investment rather than payout shareholders

Question 5

What will happen in the long run if there is gov. welfare?

Answer 5

Wages and costs will increase