Answer to Question #104084 in Macroeconomics for Saint

Question

The President of Lisavia (a small country) wants to increase productivity in his country. He has recently become aware of an economic principle that suggests that as a nation's productivity rises, its income will rise and therefore its standard of living will also rise. You have just been appointed as the economic advisor for Lisavia. Discuss three economic policies you might advise the President to pursue in order for his country to achieve this increased standard of living.

Answer 1

The most effective policy to increase productivity is to provide appropriate incentives for businesses to create new working places and improve the current capacity. It can be done via stimulating monetary and fiscal policy. For instance, the government is able to provide tax deductions for the businesses that introduce innovations into production process. These innovations are to increase the current level of productivity. Also, the government may attract foreign investments into promising industries, which are characterized with a high level of value added and productivity.