Question

List and explain three policies that could lead to higher living standards. Be specific about what you would do to increase living standards in a country rather than simply saying that population growth should decrease. (Hint: focus on the parameters in the Solow model)

Answer 1

1. Increasing government subsidies for firms and industries; the government intervention through increasing number of incentives and subsidies will increase the production level of firms. This increasing production level will lead to increasing demand for labour. This increasing labour demand will reduce the unemployment rate in the economy. Thus the living standard of the people will increased with high wage rates and other assistances. Proper government intervention will help to create equality and welfare among the workers in the firms.

2. Promotion of new technologies; promoting higher level of technologies will increase the demand for skilled labours. Thus the educational institutions will give more focus over technical and skilled education. Thus the educational institutions will give preference for skilled labours. The wage rate will increased for this skilled labours, thus the living standard will increase with higher wage rates.

3. Expansionary monetary policy; central bank will increase the money supply to reduce the interest rate. The falling interest rate will demand more investment. This increasing investment will hire more workers and increase the minimum wage rate slab. Thus the standard of living will increase among the workers. The economy will move towards higher growth rate.