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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 X.X% XXX XXXXXXXX remained low. XXXXX XXXX XXXXXXXXX to XXXX XXXXXXX of XXXXXXXXX XXXXXXXXX. Therefore, although in theory, it XXX cheap XX borrow, it XXX XXXX to actually create XXXXXX. Therefore, this XXXXX monetary policy can be XXXXXXXXXXX in XXXXXXXX XXXXXXXX XXXXXX</p> <p>XXXXXXX XXXXXXXXX of XXXXXXXX XXXXXX, is that XXXXXXX interest XXXXX very low could distort future economic activity. For XXXXXXX, the US cut interest XXXXX following XXX economic uncertainty XX 9/XX. XXXXX XXX XXXXXXXX rates encouraged people XX take on ambitious loans XXX mortgages; XXXX was a factor XXXXXX the XX XXXXXXX XXXXXX. Therefore cutting interest XXXXX, at the wrong XXXX, can XXXXXXXXXX to a XXXXXX housing XXX XXXXX XXXXXX XXXXX XXXX XXXXXXXXXXX economic XXXXXX. However, in 2009-12, the XXXXX XX the financial crisis means XXXXX XX no XXXXXXXXX XXXXXX of a XXXXXXX bubble, so it was appropriate XX keep XXXXXXXX XXXXX XX zero.</p> <p><strong>X. Quantitative Easing.</XXXXXX>In a liquidity XXXX, where lower interest rates fail to boost demand, the XXXXXXX XXXX may need to XXXXXX more XXXXXXXXXXXXXX XXXXX of XXXXXXXX XXXXXX.<a href="XXXXX://XXX.economicshelp.XXX/blog/XXXX/economics/XXXXXXXXXXXX-XXXXXX/">XXXXXXXXXXXX XXXXXX</a>involves XXXXXXXXXX the money supply XXX buying XXXXX XX keep bond rates XXX. XXX XXXX XX XXXX the XXXXXXXX in the money XXXXXX XXX lower XXXXXXXX rates will XXXXX investment XXX XXXXXXXX activity. XXX fear is that XXXXXXXXXX the money XXXXXX could cause XXXXXXXXX. Though XXXXXXXX XXXX XXXX-XX suggests that the XXXXXXXXXXXX XXXXXX was minimal. Without quantitative easing, the recession XXX XXXXXX to be XXXXXX, XXXXXX QE alone failed XX XXXXXX XXX XXXXXXX back to a normal growth XXXXXXXXXX.</p> <p><span></span></p> <p><XXXXXX>3. Fiscal XXXXXX</XXXXXX>. The XXXXXXXXXX XXX boost XXXXXX XX XXXXXXX XXX and increasing government spending. XXXXX XXXXXX tax will XXXXXXXX disposable XXXXXX, XXXXXXXXXXX consumer XXXXXXXX. XXXXXX XXXXXXXXXX spending XXXX XXXXXX XXXX and provide an economic XXXXXXXX.</p> <p>XXX XXXXXXX with expansionary XXXXXX XXXXXX XX XXXX it XXXXX XX an increase in government borrowing. To XXXXXXX XXXX extra XXXXXXXX, the government have XX borrow from the XXXXXXX sector. If the XXXXXXX XX already XXXXXXX, XXXX XXXXXX government XXXXXXXXX XXX<a XXXX="XXXXX://www.economicshelp.org/blog/1013/XXXXXXXXX/crowding-out/">crowd out</a>XXX XXXXXXX XXXXXX. Expansionary XXXXXX XXXXXX XX also XXXXXXXXXX XX those who XXXX it is an excuse to XXXXXXXXXXX XXXXXXXX the XXXX XX XXX government sector.</p> <p>XXXXXXX, XX XXX economy XXXX a rapid XXXX in private spending, XXX rise in XXX XXXXXX XXXXX, expansionary XXXXXX XXXXXX can XXXX provide a XXXXX XX XXXXXX in XXX XXXXXXX XXXXXXX causing crowding out.</p> <p><img class="aligncenter" XXX="https://XXX.XXXXXXXXXXXXX.org/XXXX/wp-content/XXXXXXX/2012/XX/XX-saving-ratio-2012.jpg" XXX="XXXXXX" width="XXX" style="height: XXXX; XXX-width: 100%; clear: XXXX; display: XXXXX; margin-XXXXX: auto; margin-XXXX: auto;"></p> <p>XXXX graph shows a large rise in private saving after recession of XXXX. X XXXX in saving XXXXX that XXXXX is XXXXXX XX XX a XXXXXXXXXX of XXXXXXXXX XXXXXX (<a XXXX="https://www.XXXXXXXXXXXXX.XXX/blog/5214/economics/great-XXXXXXXXX-v-great-XXXXXXXXXX-XX-1930s/">UK had longer XXXXXXXXX XXXX 1930s</a>) It XXXX means XXXXX XXXX XX XXXXXX demand for government XXXXX. In 2012, XXX XX XXXXX borrow XX XXXX XXX interest XXXXX. Therefore, XXXXXXXXXXXX fiscal policy could XXXX been XXXX to boost XXXXXXXX rather than XXX XXXXXXXX.</p> <p>XXX XXX XX XXXXXXXXXXXX fiscal policy is for the government XX XXXXXX XXX XXXX in private XXXXXX XXXXXXXX. Similarly, during a period XX XXXXXXXX expansion, the XXXXXXXXXX XXX need to do the opposite of XXXXXX XXXXX and lower XXXXXXXX to XXXXXX a XXXXXX XXXXXXX.</p> <p><strong>3. XXXXXXXXXXX</XXXXXX></p> <p>For countries XXXXX in a fixed exchange XXXX. XXXXXXXXXXX can XXXX restore XXXXXXXXXXXXXXX XXX boost domestic XXXXXX. A XXXX in XXX XXXXXXXX rate XXXXX XXXXXXX cheaper XXX XXXXXXX XXXX XXXXXXXXX.</p> <p>For XXXXXXX, Argentina and Iceland both had rapid XXXXXXXXXXXX, which in the medium XXXX helped their XXXXXXXX recovery. XXX UK XXXX XXXXXXXXX XXXX<a href="http://XXXX.economicshelp.XXX/XXXX/12/exchange-rate-XXXXXXXXX-XXXXXX-XXXX.XXXX">leaving XXX XXXXXXXX rate mechanism in XXXX</a>.</p> <p>The XXXXXXXXXXXX of devaluation XX that it XXX XXXX XX XXXXX-XXXX XXXXXXXX pain. Rising import prices XXXXXXXX inflation XXX XXXXXX standards XX XXXXXX. Devaluation XX XXXX seen as a sign of XXXXXXXX XXX XXXXXXXXX weakness.</p> <p>In XXX case XX XXXXXXXX countries, XXXXXXXXXXX is XXXXXX (XXX:<a XXXX="XXXXX://XXX.economicshelp.XXX/XXXX/3091/economics/competitiveness-in-europe/">competitiveness in Europe</a>), XXX it is XXXX harder to devalue and leave XXX exchange rate because of XXX XXXXXXXXXX XX capital flight.</p> <XX> Limitations XX XXXXXX XXXX XXXXXXXX</h3> <p>XXXXXX XXXX policies XXXXXX increase XXX XXXX XX XXXXXX above the long XXX XXXXX rate XXXXXXX XXXXXXX XXXXXXXXXXXXX XXXX and bust.</p> <p>For example, in XXXX, the XX chancellor, XXXXXXX Barber XXXXXXXXX a ‘XXXX XXX XXXXXX’. XXXXX were XXX against a backdrop of rising house prices and XXXXXXXXX. XXXX XXX to XXX Barber boom – rapid economic XXXXXX. However, it XXXX caused a XXXXX in XXXXXXXXX and the growth proved XXXXXXXXXXXXX.</p> <p><XXX XXXXX="XXXXXXXXXXX" XXX="https://www.economicshelp.XXX/XXXX/XX-XXXXXXX/uploads/2011/XX/econ-XXXXXX-86-101-500x369.jpg" XXX="growth" width="500" style="height: XXXX; XXX-width: 100%; XXXXX: both; XXXXXXX: block; margin-XXXXX: auto; margin-XXXX: auto;"></p> <p>In XXX 1980s, we repeated XXXX mistake by XXXXXXXXX monetary and fiscal XXXXXX. XXXX XXX XX very high XXXXXX XXX XXXXXXXXX. XXXX XXXXXX proved unsustainable, leading to the recession of 1991-92.</p> <p>XX some XXXXX, XXXXXX side policies XXXX XX XX XXXX to XXXXX XXX XXXXXX of XXXXXXXXX XXXXXX. XX XX necessary XX avoid an economic boom, where XXXXXX proves unsustainable XXX XXXXXXXXXXXX. Managing XX XX XXXXX XXXX and bust cycles XXX XXXX provide a XXXXXX period of XXXXXXXX expansion.</p> <XX>Supply XXXX Policies</h3> <p>The XXXXXXXXXXX strategy for XXXXXXXXX XXXXXXXX growth XX to XXX supply XXXX policies. XXXXX attempt to XXXXXXXX XXXXXXXXXXXX XXX efficiency XX XXX XXXXXXX. <XXXXXX>XXXXX Income XXXXX</XXXXXX>. It is XXXXXX lower XXXXXX tax can boost the incentive XX work and XXXXXXXX labour XXXXXX. XX XX XXXXXXXX, if income XXXXX XXXX excessive, then cutting XXXX XXX encourage XXXXXX to work XXXX. XXXXXXX, this argument XX XXXXX exaggerated. XXXXXXXX XXXXX XXXX XX income tax XXXX 23% to XX%, would have XXXX XXXXXXX XXXXXX on XXXXXX XXXXXX. With a XXX XXX, XXXXX is XXXX an XXXXXX XXX XXXXXXXXXXXX XXXXXX. The XXXXXX effect XXXXXX that higher XXXXX XXXX XXXXXX work XXXXXX XXXXX XX achieve XXXXX XXXXXX XXXXXX. (<a XXXX="http://XXXX.XXXXXXXXXXXXX.XXX/2008/XX/XXXXXXXXX-XX-XXX-cuts.html">XXXXXXXXX of XXX cuts</a>)</p> <p><strong>XXXXXXXX labour XXXXXXX</XXXXXX>. Highly regulated labour markets, XXXX XXXXXXXXX regulation may XXXXXXXXXX firms from employing workers XXX setting up in the XXXXX XXXXX. It is XXXXXX that countries such XX XXXXXX have XXX XXXX XXXXXX XXXXXX XXXXXXXXXXXX, such as cost of firing XXXXXXX, maximum working XXXX and XXXXXXX XXXXX. More flexible XXXXXX XXXXXXX XXX XXXX provide a long term boost XX XXXXXXXXXX. However, XXXXX is a trade XXX. XXXX flexible XXXXXX markets could XXXXXXXX job insecurity XXX XXXX XX harmful effects XX XXXXXX XXXXXXXXXXXX.</p> <p><strong>XXXXXX XXXXX relationships</strong>. In the XXXXX, XXX XX economy XXXXXXXX because XX XXXX industrial relations. XXXXX were XXXXXXXX XXXXXXX which XXXXXXX production. With an XXXXXXXXXXX XXXXXXXX it was XXXXXXXXX XX XXXXXXX more XXXXXX efficient production processes. XXXXXXXX XXX power XX trades XXXXXX XXX XXXX to XXXXXXX labour productivity.</p> <p><XXXXXX>XXXXXXXXXXXXX XXX XXXXXXXXXXXX.</strong> Privatizing XXXXXXXXXX XXX XXXXXXXX XXXXXXXXXX as private firms XXXX a greater XXXXXX incentives XX XXX costs and boost XXXXXXXXXXXX.</p> <h3>Limitations of Supply Side Policies</h3> <p>Supply XXXX policies can XXXX considerable XXXX. For example, XX you invested in XXXXXX XXXXXXXXX XXX training, it could take several years XXX this XX lead XX higher labour productivity.</p> <p>In a XXXXXXXXX, supply side XXXXXXXX XXX not going to XXXXX the fundamental problem of deficiency XX XXXXXXXXX demand. In a XXXXXXXXX increasing XXXXXXXXXXX of XXXXXX XXXXXXX XXX XXXXXXXXXXX investment XXX help XX XXXX extent. But, XXXXXX there is XXXXXXXXXX demand, firms XXXX be XXXXXXXXX to increase production and set XX XXX XXXXXXXX XXXXXXXX. XXX XXXXXXX, in<a href="https://XXX.XXXXXXXXXXXXX.org/XXXX/5245/economics/how-to-XXXX-with-XXXXX-XXXXXXXXXXXX/">how to deal with XXXXX XXXXXXXXXXXX,</a>XXX ECB president mentioned a ‘XXXXXX XXXX’. But, this XXXXXX XXXX is only XXXXXXXXXXX XXXXXX XXXX XXXXXXXX XXX not the XXXX XX XXXXXX in countries with high unemployment.</p> <p>Politicians often XXXX-XXXXXXXX the potential XXX XXXXXX side XXXXXXXX to XXXXXXX XXX long term growth rate. For XXXXXXX, in XXX XXXXX, the XX XXXXXXX several relatively successful supply side XXXXXXXX (privatisation, reduce power XX XXXXXX, XXXXX XXXXXX tax). But, there was no XXXXXXXX miracle, XXXX growth went above the XXXX run XXXXX rate XX 2.X% – it XXXXXX unsustainable XXX XXX to boom and bust.</p> <p><XX></p>">
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