Definition of:Long-term economic growth - the sustained increase in output in an economy measured by an increase in real GDP over a period of timeFiscal policy - it is the use of government expenditure and tax rates to influence aggregate demand. Two types --> expansionary and contractionary monetary policy
Diagram showing how fiscal policy (government spending and/or reduction in income tax) would affect aggregate demand and ultimately the price level and output. Price level on y-axis and output on x-axis. Mention the effect that lower taxes will have on consumption and private investment. Moreover, the effect government spending has on physical capital goods and human capital formation. Relate all this to the effect on AD, price level and output.
Finally, mention other alternatives to government policies that help achieve economic growth (monetary policy) and analyze its effectiveness. Which policy is easier to implement and which policy effects start to appear first in the economy and what implications this has on economic growth. Argue for both policies and reach a conclusion on what you think is the best policy, supporting your argument with theory and one real life example.