Chapter 39, Problem 1MCQ

To determine

To know: Factor causing rapid economic growth.

Explanation of Solution

To promote economic growth rapidly, the government uses expansionary fiscal policies such as increasing fiscal spending on infrastructure, physical and human growth, and research and development.

When the economy experiences higher spending on infrastructure and government spending then it faces more rapid economic growth.

Thus, options “a” and “c” are correct.

Explanation:

• An increase in spending on infrastructures such as roads, ports, railways, warehouses, and other storage facilities to support the various market activities will promote economic growth. These infrastructures will improve the better connectivity between the forward and backward linkages in the economy.
• An increase in government spending on human and physical capital such as better education and health facilities, and higher spending on research & development will promote economic growth. An improvement in educational facilities (such as providing courses according to the market demand for workers, opening training institutions, and so on) will help in reducing structural unemployment in the economy which helps in getting achieving economic growth.

The other options are incorrect because:

• Limiting human capital means curtailing the health and education facilities available to the citizens. It will reduce the production of and demand for goods and services in the market and thus cause economic growth to fall.
• Restricting public health programs lowers the production capacity of the economy because more unhealthy people reflect more work-offs and lower productivity which causes the overall production and thus the economic growth to fall.
• An increase in taxes indicates the lower availability of disposable income in peoples’ hands which reflects the lower demand for goods and services in the market. A lower aggregate demand lowers the economic growth

Economics Concept Introduction

An increase in the aggregate production of goods and services in an economy over time is considered economic growth. Economic growth is a quantitative measurement as it represents growth in numerical form in terms of GDP or National income.