1 For the following questions briefly explain the effect on

1. For the following questions, briefly explain the effect on long-run economic growth and why.(1 point each)

a. Improved education

b. Tight money policy

c. Higher taxes on business

d. Fewer government regulations

e. Improvements in technology

f. Lower interest rates

g. Less savings by households

h. Improved management styles

i. An increase in the labor participation rate

j. Lack of high quality computer chips

Solution

a.) Improved Education:- It confers high earning capacity on people. It stimulates innovations and facilitates adaptation of new technologies and ulimately leads to increase in real national income of country.

i.) An increase in the labor participation rate:- It is source of direct Human capital formation which fosters the economic growth in form of Higher productivity and production in the economy. The GDP of nation increased.

b.) Tight money policy:- It reduces the effect of inflation in the economy and tighten the economic market. Tight money policies can reduce the amount of credit, because banks do not generate enough income from the interest rates on loans. Accordingly, it has direct impact on economic growth.

g.) Less savings by households:- Less savings will results in less investments in the economy. Accordigly, the rate of capital formation decreased in the economy which is harmful from development point of nation.

f.) Lower interest rates:- Lowering the interest rates is “Relaxing” the economy, with several positive effects in personal and business environments in the country.

d.) Fewer government regulations:- Organizations can do their business with their ease. It will lead to privatization and improved quality of product to the consumers. MNC\'s can invest in your country. The foreign exchange will increase and country\'s balance of payment will be favourable.

e.) Improvements in technology:- Improved technology will leads to increased productivity and the GDP of country is increased. The rate of progress in the economy is increased.