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- No!! Our productive capacity as an economy is way too low compared to all the other countries... We need to find a way to increase it.
- First of all, we can increase the government spending on education, which, in the long term, increases the quality and quantity of labour.
- In addition, we can also increase government spending on infrastructure, which in turn, increases the quality and quantity of capital.
- Tax allowances and subsidies can also be utilised for firms to develop their capital, like new capital, research and development, innovation, upgrading machinery and improving technology. This also increases the quality and quantity of capital in the economy.
- These interventionist supply-side policiesallows the economy to boost their productive capacity in the long run. There can also bemarket-based supply-side policies, like labour market reforms andreduction of income and corporation tax.
- Although this may allow the government to achieve all the macroeconomic objectives, there are some drawbacks. First of all, it can be very expensive to implement, and cuts may have to be made elsewhere in the economy. Next, it takes a really long time to have an effect. And lastly, they are not guaranteed to work, which provides a huge opportunity cost for the time and money placed on this policy.
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