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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

Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?

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