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List five policies that encourage growth.
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<strong>1. Monetary Policy</strong>. Monetary policy is the most common tool for influencing economic activity. To boost AD, the Central Bank (or government) can cut interest rates. Lower interest rates reduce the cost of borrowing, encouraging investment and consumer spending. Lower interest rates also reduce the incentive to save, making spending more attractive instead. Lower interest rates will also reduce mortgage interest payments, increasing disposable income for consumers.</p> <p></p> <p><img src="https://www.economicshelp.org/blog/wp-content/uploads/2011/12/uk-base-rates-growth-07-11.png" alt="econ-growth" width="450" style="height: auto; max-width: 100%;"></p> <p>Base rates cut to 0.5% to try and stimulate economic growth in the UK.</p> <p><strong>Evaluation of Monetary Policy</strong>. Lower interest rates may not always boost spending. In a liquidity trap, lower interest rates may not boost spending because people are trying to pay back debts. In 2009, UK interest rates were cut to 0.X% XXX spending remained low. Banks XXXX unwilling XX lend because of liquidity XXXXXXXXX. Therefore, although in theory, it XXX cheap to borrow, it XXX XXXX to XXXXXXXX create credit. XXXXXXXXX, XXXX XXXXX monetary XXXXXX XXX XX ineffective in boosting economic growth</p> <p>XXXXXXX criticism of monetary XXXXXX, is XXXX XXXXXXX XXXXXXXX rates very XXX could XXXXXXX XXXXXX XXXXXXXX XXXXXXXX. For example, XXX XX cut XXXXXXXX rates following XXX XXXXXXXX XXXXXXXXXXX XX X/11. XXXXX XXX interest XXXXX encouraged people XX take XX ambitious XXXXX XXX XXXXXXXXX; XXXX was a XXXXXX behind the XX XXXXXXX XXXXXX. Therefore cutting interest rates, XX XXX XXXXX time, XXX contribute XX a XXXXXX XXXXXXX XXX asset bubble XXXXX XXXX destabilise XXXXXXXX XXXXXX. However, in XXXX-12, XXX XXXXX XX the XXXXXXXXX XXXXXX means there is XX XXXXXXXXX XXXXXX of a XXXXXXX bubble, so it XXX XXXXXXXXXXX XX XXXX XXXXXXXX XXXXX XX zero.</p> <p><strong>2. XXXXXXXXXXXX XXXXXX.</strong>In a liquidity trap, XXXXX XXXXX XXXXXXXX rates XXXX XX boost demand, XXX XXXXXXX XXXX XXX need XX XXXXXX more XXXXXXXXXXXXXX XXXXX of monetary XXXXXX.<a href="XXXXX://www.XXXXXXXXXXXXX.org/blog/1047/XXXXXXXXX/quantitative-easing/">Quantitative easing</a>XXXXXXXX increasing XXX XXXXX XXXXXX XXX XXXXXX bonds to XXXX XXXX rates low. XXX XXXX is XXXX XXX increase in XXX XXXXX XXXXXX XXX XXXXX interest XXXXX XXXX XXXXX XXXXXXXXXX and XXXXXXXX XXXXXXXX. XXX XXXX XX XXXX XXXXXXXXXX the XXXXX XXXXXX could XXXXX inflation. Though evidence XXXX XXXX-XX suggests that the inflationary XXXXXX XXX minimal. Without XXXXXXXXXXXX easing, the recession was likely XX XX XXXXXX, though QE XXXXX failed XX return the XXXXXXX back to a normal XXXXXX XXXXXXXXXX.</p> <p><span></span></p> <p><strong>X. Fiscal XXXXXX</strong>. The government can boost demand XX cutting XXX XXX increasing XXXXXXXXXX spending. Lower income tax will increase disposable XXXXXX, encouraging XXXXXXXX XXXXXXXX. XXXXXX XXXXXXXXXX XXXXXXXX will XXXXXX XXXX XXX XXXXXXX an XXXXXXXX XXXXXXXX.</p> <p>The problem XXXX XXXXXXXXXXXX XXXXXX XXXXXX is that it leads XX an XXXXXXXX in government borrowing. XX finance this XXXXX spending, XXX XXXXXXXXXX XXXX XX borrow XXXX the XXXXXXX XXXXXX. XX XXX economy is already XXXXXXX, then higher government XXXXXXXXX can<a XXXX="XXXXX://XXX.economicshelp.XXX/XXXX/XXXX/economics/XXXXXXXX-out/">XXXXX out</a>XXX XXXXXXX sector. Expansionary fiscal XXXXXX XX also XXXXXXXXXX by XXXXX who fear it is an excuse XX permanently increase the size of the XXXXXXXXXX sector.</p> <p>XXXXXXX, if XXX XXXXXXX sees a XXXXX fall in private XXXXXXXX, and XXXX in the saving ratio, XXXXXXXXXXXX fiscal policy can help XXXXXXX a boost to XXXXXX in the economy XXXXXXX causing XXXXXXXX out.</p> <p><XXX XXXXX="aligncenter" XXX="https://www.XXXXXXXXXXXXX.org/XXXX/XX-XXXXXXX/uploads/2012/05/uk-saving-ratio-2012.XXX" alt="saving" width="450" style="XXXXXX: XXXX; max-width: 100%; clear: both; XXXXXXX: block; margin-XXXXX: XXXX; margin-left: XXXX;"></p> <p>XXXX graph XXXXX a XXXXX rise in private XXXXXX after XXXXXXXXX XX 2008. A XXXX in XXXXXX XXXXX XXXX XXXXX XX likely to XX a XXXXXXXXXX of XXXXXXXXX demand (<a href="XXXXX://XXX.economicshelp.org/XXXX/XXXX/XXXXXXXXX/XXXXX-XXXXXXXXX-v-great-XXXXXXXXXX-of-1930s/">XX had longer recession XXXX XXXXX</a>) XX XXXX XXXXX XXXXX XXXX be XXXXXX demand XXX government XXXXX. In 2012, XXX UK could XXXXXX XX XXXX XXX XXXXXXXX rates. XXXXXXXXX, XXXXXXXXXXXX XXXXXX policy XXXXX XXXX XXXX used to XXXXX XXXXXXXX rather than XXX opposite.</p> <p>XXX aim of XXXXXXXXXXXX fiscal XXXXXX XX XXX XXX XXXXXXXXXX to offset XXX XXXX in private sector spending. Similarly, during a period XX economic XXXXXXXXX, XXX government XXX need to XX the XXXXXXXX of higher taxes and XXXXX XXXXXXXX XX create a budget surplus.</p> <p><strong>3. Devaluation</strong></p> <p>For XXXXXXXXX XXXXX in a fixed XXXXXXXX XXXX. Devaluation XXX help XXXXXXX XXXXXXXXXXXXXXX XXX XXXXX XXXXXXXX XXXXXX. A fall in the exchange rate makes exports XXXXXXX XXX XXXXXXX more expensive.</p> <p>XXX example, XXXXXXXXX XXX XXXXXXX both XXX rapid XXXXXXXXXXXX, which in the XXXXXX XXXX XXXXXX XXXXX economic recovery. XXX UK also benefited XXXX<a href="http://econ.economicshelp.XXX/XXXX/XX/XXXXXXXX-XXXX-mechanism-XXXXXX-XXXX.XXXX">leaving the exchange XXXX mechanism in XXXX</a>.</p> <p>XXX XXXXXXXXXXXX of XXXXXXXXXXX XX that it XXX lead to XXXXX-term XXXXXXXX XXXX. XXXXXX XXXXXX XXXXXX XXXXXXXX XXXXXXXXX and XXXXXX XXXXXXXXX of XXXXXX. Devaluation XX XXXX XXXX XX a XXXX XX XXXXXXXX and XXXXXXXXX XXXXXXXX.</p> <p>In XXX case XX Eruozone countries, devaluation is needed (XXX:<a href="https://www.XXXXXXXXXXXXX.org/XXXX/XXXX/economics/XXXXXXXXXXXXXXX-in-europe/">competitiveness in Europe</a>), but it is much harder to devalue and XXXXX XXX exchange XXXX because of the likelihood of capital XXXXXX.</p> <XX> Limitations XX Demand XXXX XXXXXXXX</XX> <p>XXXXXX side XXXXXXXX XXXXXX XXXXXXXX the XXXX of growth XXXXX the long XXX XXXXX rate without causing unsustainable boom and bust.</p> <p>For example, in 1972, XXX UK chancellor, Anthony XXXXXX announced a ‘dash for XXXXXX’. Taxes XXXX XXX XXXXXXX a XXXXXXXX XX XXXXXX house XXXXXX and inflation. XXXX XXX to the Barber XXXX – XXXXX economic XXXXXX. XXXXXXX, it also XXXXXX a spike in inflation XXX the growth XXXXXX XXXXXXXXXXXXX.</p> <p><XXX class="XXXXXXXXXXX" XXX="XXXXX://www.XXXXXXXXXXXXX.XXX/XXXX/XX-XXXXXXX/uploads/2011/XX/econ-growth-XX-XXX-500x369.XXX" alt="growth" width="500" style="height: auto; max-width: 100%; XXXXX: XXXX; display: block; XXXXXX-right: auto; margin-XXXX: XXXX;"></p> <p>In XXX 1980s, we repeated XXXX XXXXXXX XX XXXXXXXXX XXXXXXXX and XXXXXX policy. XXXX XXX to XXXX high growth XXX XXXXXXXXX. This XXXXXX proved unsustainable, XXXXXXX to the XXXXXXXXX XX XXXX-92.</p> <p>XX some XXXXX, XXXXXX side XXXXXXXX XXXX XX be XXXX to XXXXX the growth XX aggregate XXXXXX. XX XX XXXXXXXXX to avoid an XXXXXXXX XXXX, where growth XXXXXX XXXXXXXXXXXXX and XXXXXXXXXXXX. XXXXXXXX XX to avoid boom XXX bust cycles can XXXX provide a longer period XX XXXXXXXX expansion.</p> <XX>XXXXXX Side XXXXXXXX</h3> <p>XXX alternative strategy XXX improving economic XXXXXX is to XXX XXXXXX XXXX XXXXXXXX. XXXXX XXXXXXX XX XXXXXXXX XXXXXXXXXXXX and efficiency of XXX economy. <XXXXXX>XXXXX XXXXXX XXXXX</strong>. It XX XXXXXX lower income tax can XXXXX XXX XXXXXXXXX to work XXX XXXXXXXX XXXXXX XXXXXX. XX XX possible, XX XXXXXX taxes XXXX XXXXXXXXX, then XXXXXXX them XXX XXXXXXXXX XXXXXX to XXXX more. XXXXXXX, this XXXXXXXX XX often XXXXXXXXXXX. XXXXXXXX XXXXX XXXX of income tax from XX% to XX%, XXXXX have XXXX XXXXXXX XXXXXX on XXXXXX XXXXXX. XXXX a XXX cut, there XX XXXX an income XXX substitution XXXXXX. XXX income XXXXXX states that XXXXXX XXXXX make people XXXX longer XXXXX to XXXXXXX their XXXXXX XXXXXX. (<a href="XXXX://XXXX.economicshelp.org/XXXX/XX/economics-XX-tax-cuts.XXXX">economics of XXX XXXX</a>)</p> <p><XXXXXX>Flexible XXXXXX markets</XXXXXX>. Highly regulated labour XXXXXXX, XXXX XXXXXXXXX regulation XXX discourage XXXXX from employing XXXXXXX and XXXXXXX XX in the XXXXX place. XX is argued that XXXXXXXXX such as France have XXX XXXX labour market XXXXXXXXXXXX, such XX XXXX XX firing workers, maximum XXXXXXX week and XXXXXXX XXXXX. More flexible labour markets XXX XXXX XXXXXXX a XXXX term boost XX investment. XXXXXXX, there is a XXXXX off. More flexible labour markets XXXXX XXXXXXXX XXX insecurity and lead to XXXXXXX XXXXXXX on XXXXXX productivity.</p> <p><XXXXXX>XXXXXX Union relationships</strong>. XX XXX 1970s, the XX XXXXXXX suffered XXXXXXX XX XXXX XXXXXXXXXX XXXXXXXXX. XXXXX were XXXXXXXX strikes XXXXX stopped production. With an adversarial XXXXXXXX it was XXXXXXXXX XX promote XXXX labour XXXXXXXXX XXXXXXXXXX processes. XXXXXXXX the XXXXX of trades XXXXXX XXX XXXX to improve labour XXXXXXXXXXXX.</p> <p><strong>Privatisation and XXXXXXXXXXXX.</strong> XXXXXXXXXXX XXXXXXXXXX can XXXXXXXX efficiency XX XXXXXXX XXXXX XXXX a XXXXXXX XXXXXX XXXXXXXXXX to cut XXXXX and boost productivity.</p> <h3>XXXXXXXXXXX of Supply Side Policies</XX> <p>Supply side policies XXX XXXX XXXXXXXXXXXX time. For example, XX you invested in XXXXXX XXXXXXXXX XXX training, it XXXXX take XXXXXXX XXXXX XXX XXXX to XXXX XX XXXXXX XXXXXX productivity.</p> <p>XX a recession, XXXXXX side policies XXX XXX going XX XXXXX the XXXXXXXXXXX problem of deficiency of XXXXXXXXX demand. XX a recession increasing flexibility XX labour markets and encouraging XXXXXXXXXX XXX help XX XXXX XXXXXX. XXX, XXXXXX there XX sufficient demand, XXXXX will XX XXXXXXXXX XX increase XXXXXXXXXX and XXX up XXX XXXXXXXX XXXXXXXX. For XXXXXXX, in<a href="XXXXX://XXX.XXXXXXXXXXXXX.org/XXXX/5245/economics/how-to-deal-with-youth-unemployment/">how to XXXX with XXXXX unemployment,</a>XXX XXX XXXXXXXXX mentioned a ‘growth XXXX’. But, XXXX XXXXXX pact XX only considering XXXXXX XXXX policies XXX not XXX lack XX demand in countries with XXXX XXXXXXXXXXXX.</p> <p>Politicians often XXXX-estimate XXX XXXXXXXXX XXX supply XXXX XXXXXXXX to improve XXX long term growth XXXX. For example, in XXX 1980s, the XX pursued several relatively XXXXXXXXXX supply XXXX XXXXXXXX (privatisation, XXXXXX power of XXXXXX, lower XXXXXX XXX). But, XXXXX was no XXXXXXXX XXXXXXX, when growth XXXX XXXXX the XXXX run XXXXX XXXX XX X.5% – it proved unsustainable and led XX XXXX and XXXX.</p> <p><br></p>">
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