Question

using their group designation, identify the problem relating to growth policies associated with high income countries and discuss the focus of main public policies targeted at addressing this problem.

Answer 1

In the high-income countries the significant challenges for their growth policies to push their highly educated workforce and push to invest in technologies. Their public policy should aim at shifting the aggregate supply curve to the right. The best public policy for this purpose is the fiscal policy, that is government investment in human capital and technologies. They believe that public policies always work best under market-oriented economies. So, they keep their monetary policy target to keep the inflation rate at zero or stable. This will reduce the exchange rate risk.

After the financial crisis, the high-income countries shifted their focus into long-run policies to short-run policies. In the US, after the crisis faced high unemployment rates. Moreover, also the economies running with a huge budget deficit. So the country focus on lower government expenditure and high tax rates. In the case of monetary policy, they ran expansionary monetary policy with zero interest rates.