A government wants faster economic growth over the next ten years. Compare three approaches.
Cut interest rates and taxes
- Households: More income to spend and cheaper loans.
- Economy: Output rises quickly if there is spare capacity.
- Prices: If the economy is near capacity, inflation rises.
Boosting demand gives fast growth when resources are idle, but risks inflation otherwise.
Invest in education and training
- Workers: Better skills lead to better-paid jobs.
- Economy: Higher productivity shifts the PPC outwards.
- Timing: Benefits appear only after years.
Supply-side investment gives lasting growth, but slowly.
Build new transport links
- Firms: Lower transport costs and faster delivery.
- Construction workers: Jobs during the building phase.
- Environment: Construction and more traffic may add pollution.
Infrastructure raises demand now and capacity later, with possible environmental costs.