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2. With renewed emphasis on education, the nation's high school graduation rate increases from
70 percent to 85 percent, and the literacy rate rises from 98 percent to 99.5 percent.
3. The central bank expands the money supply in an attempt to boost spending and recover from a
4. Because the nation is experiencing unusually low rates of spending and high unemployment, the
government lowers household income tax rates and increases military spending.
Government Policies to Promote Long-Run Economic Growth
The key to economic growth is the productivity of the nation where productivity is commonly
measured as the quantity of goods and services produced from each unit of labor. The following
factors contribute to a nation's pro .ductivity, and thus its economic growth.
CapitaIper worker. A country's worlfforce is more productive ff the worlfforce has more and better tools
with which to work. When tools are produced as physical capital, they are themselves paired with labor to
produce goods and services. Therefore, if a country invests in capital production, the country's workforce
will be more productive. The thing about capital tools is that theywear out (depreciate) so they must always
be replaced at a rate that outpaces the rate of depreciation. The government can promote economic growth
through policies that encourage investment in physical capital.
In addition to the private capital workers use to produce goods and services, a country has public capital
used for production. This type of capital is known as infrastructure. Governments invest directly in physical
capital by providing infrastructure such as roads, bridges, p'ower lines, and information networks.
Human capitalper worker. In addition to using the physical capital tools, the worlfforce also uses its
collective experience and education to produce goods and services. Human capital can be acquired through
formal schooling, occupational training, or simply accumulated experience at the workplace. Human
capital, like physical capital, depreciates over time. Governments promote economic growth by investing in
the country's human capital, through investment in its education system.