Question

Use one example to explain how bad institutions and policies can raise the cost of investments.

Answer 1

Ans-) We all know Institution and monetary policy have impact on the economic growth. Strong institutions symbolize the good economic condition of the country, less poverty etc., and monetary policy directly helps in controlling the economy situation.

When we talk about investment it is effected by the both institution and policy.

A) Monterey Policy- Government controls the inflation rate, economic growth rate, poverty etc, with the help of policy. If suppose government decides to higher the interest rate in this situation cost of investment will raise as the cost of borrowing becomes high. People will stop borrowing and starts doing investment because on the other hand they will get good interest rate on the investment.

On the other hand Institution helps in checking the growth rate in the economy. Bad Institution symbolizes poor economic condition in the country. There is less demand of goods and services in the country and this cuts the investment.