Interventionist Policies To Boost Development

Question 1

State + explain the macro effects of interventionist policies to boost development.

Answer 1

• Growth: higher AD, higher growth.
• Unemployment / Jobs: lower unemployment, job creation.
• LRAS Benefits: LR growth, higher prosperity for people in economy, international competitiveness benefits - reduce CoPs.
• Income Inequality: reduced - G on welfare, key regulations that protect workers (e.g. min W). Nationalisation - workers paid more fairly, higher levels of employment.
• Government Finances: risk of gov finances worsening - worsening budget deficits + national debt - burdens future generations.

Question 2

State + explain the micro effects of interventionist policies to boost development.

Answer 2

• Allocative Inefficiency: protectionism, price controls - all worsen efficiency of resource allocation - impact on living standards.
• Government Failure: if policies don’t go right / there’s unintended consequences - if gov corruption is apparent due to implementation of policies.
• X-Inefficiency: due to gov not having profit motive, P could spiral out of control (e.g. infrastructure projects - building schools, hospitals, etc). X-inefficiency of nationalised firms.
• Solving Market Failure: if G is solving key market failures - may actually see allocative efficiency (e.g. G on education + health - PE, G on infrastructure like public goos).