The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?
A) 1
B) 2
C) 3
D) 4

Question

Quizplus · Accepted Answer

The measures that will have a positive effect on growth are reducing corruption in the legal system and encouraging trade with neighboring countries. By reducing corruption in the legal system, the government can create a more stable and predictable business environment, which can attract more investment and promote growth. Encouraging trade with neighboring countries can help expand markets for domestic businesses and create new opportunities for growth. The other measures, such as reducing reliance on market forces, restricting foreign investment in domestic industries, and increasing the fraction of GDP devoted to consumption, are likely to stifle growth by limiting competition, reducing incentives for innovation, and reducing investment in productive capacity.

The President of a Poor Country Has Announced That He