If government policies are to be successful in enhancing a country's long- run growth rate, they likely work through generating

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Quizplus · Accepted Answer

Government policies that stimulate private investment in physical and human capital can lead to an increase in productivity and potential output, thus enhancing the country's long-run growth rate. Fiscal policies that shift the AD curve to the right may lead to short-term economic growth, but are not sustainable in the long run. An increase in current consumption and a reduction in saving may provide a short-term boost to the economy, but do not contribute to long-term growth. Higher levels of current consumption without investment in productive capacity may lead to inflation and a decline in the country's growth potential. A leftward shift in the AS curve would imply a decrease in the country's ability to produce goods and services, which would be detrimental to long-run growth.

If Government Policies Are to Be Successful in Enhancing a Country's