Public Policy and Economic Growth
Introduced| English | Meaning |
|---|---|
| supply-side policies/səˈplaɪ saɪd ˈpɒlɪsiz/ | Policies intended to improve an economy's productive capacity or efficiency. |
| Infrastructure/ˈɪnfrəstrʌktʃə/ | Basic facilities and networks, such as transport, energy and communications, that support economic and social activity. |
| Education subsidies/ˌedʒuːˈkeɪʃn ˈsʌbsɪdiz/ | Government financial support that lowers the cost of education to learners or providers and can encourage investment in human capital. |
| Incentives/ɪnˈsentɪvz/ | Rewards, penalties or other factors that encourage people to act in a particular way. |
| Deregulation/diːˌreɡjʊˈleɪʃn/ | Removing needless rules — can lower costs and let new firms enter. |
Can policy make growth faster?
- Last lesson named the engines of growth: capital, skills, technology, institutions.
- Public policy can feed those engines — these are supply-side policies 供给侧政策.
- They aim to shift LRAS right, not just nudge AD.
- The payoff is slow but permanent: a richer economy for good.
Supply-side policies aim to:
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They grow potential output, moving LRAS right.
Roads, ports, power, and broadband are examples of ______.
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Infrastructure raises the return on private capital.
Compared with demand-side policy, the payoff from supply-side policy is:
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Building capacity takes time, but the larger economy persists.
Building capital: physical and human
- Infrastructure 基础设施 spending — roads, ports, power, broadband — raises the return on private capital.
- Education subsidies 教育补贴 and training build human capital, so workers produce more.
- Both are investments: costly now, but they lift potential output for decades.
- Governments often fund these with the deficit spending we met earlier.
Economic growth shifts the production possibilities curve outward
Supply-side, or demand-side?
Supply-side policies grow potential output (shift LRAS right); demand-side policies only move AD in the short run.
Patent protection helps growth mainly because it:
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Secure rewards sharpen the incentive to innovate.
Rewarding innovation
- Support for research and development — grants, university science, patent protection — speeds new technology.
- Incentives 激励 matter: if firms keep the reward from an invention, they invest more in it.
- Tax breaks for investment (lower business taxes) encourage firms to build and hire.
- Even simple things — a fast, predictable court system — make innovation worth funding.
Which are supply-side growth policies? (Select all that apply)
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The first three lift capacity; the stimulus cheque only shifts AD.
Cutting regulations can boost growth but may also remove protections, so it has costs.
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Good policy weighs the long-run output gain against those costs.
Freeing markets to grow
- Deregulation 放松管制 — removing needless rules — can lower costs and let new firms enter.
- Opening to trade lets a country specialise and import better technology.
- The trade-off: some rules protect people or the environment, so cutting them has costs.
- Good growth policy weighs these costs against the long-run gain in output.
Supply-side policies aim to shift LRAS right: invest in infrastructure and human capital, support R&D, sharpen incentives with lower business taxes, and use deregulation and open trade. The gains are slow but lasting — a permanently larger economy.
Write from potential output of 960
- A training and research policy raises potential output from 900 to 960 over several years.
- Say what kind of policy this is.
Training and research raise potential output from 900 to 960, but only after several years. What kind of policy is this, and which curve moves?
900 plus 60 is 960 of potential output.
What does the policy do?
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A lasting rise in potential output is a rightward shift of long-run supply.