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A core principle in macroeconomics posits that demand-side interventions, such as fiscal and monetary policy, are incapable of influencing the long-run growth rate of an economy. Instead, the ultimate drivers of sustained economic expansion are supply-side factors.

Supply-Side Determinants of Long-Run Economic Growth

A developing nation is experiencing a prolonged period of stagnant economic growth. Two senior officials propose different strategies:

Evaluating Policies for Long-Run Growth

A politician proposes a series of large, permanent increases in government spending, financed by borrowing, as a primary strategy to double the country's long-run economic growth rate. Based on the fundamental drivers of an economy's productive capacity, critically analyze this proposal. Explain why this approach is unlikely to achieve its stated long-term goal and identify the types of factors that are actually capable of influencing an economy's sustainable growth trajectory.

Critique of a Long-Run Growth Strategy

A government's decision to repeatedly stimulate the economy through large, deficit-financed spending programs is a reliable strategy for increasing the nation's long-run potential growth rate.

A country's government is focused on increasing its economy's potential output and achieving a higher sustainable rate of growth over the next two decades. Which of the following policy actions is most likely to achieve this long-run goal?

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