Explain why the best educational policies to promote faster growth might be different in the following countries. a. Mozambique b. Brazil c. France

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Explain why the best educational policies to promote faster growth might be different in the following countries. a. Mozambique b. Brazil c. France

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Explain why the best educational policies to promote faster growth might be different in the following countries.

a. Mozambique

b. Brazil

c. France

Answer & Explanation (1)

Explanation
Large deficits may encourage growth in the short-run (through the creation of demand) but discourage growth in the long run (through crowding-out effect).

The crowding-out effect means that when due to high deficits government borrows away more funds, less is left to borrow for the private investors at higher interest rates, as a result, private investment spending is reduced.

Lower investment spending implies lower capital stock in the economy and lower potential GDP to future generations. For Country U being a full-employment economy, a high debt-to-GDP ratio poses serious problems to economic growth.

Verified Answer
A high debt-to-GDP ratio in the long run, as suggested by the projections, can lead to slower economic growth and raise interest rates. This will cause interest payments to consume a major chunk of the budget potentially crowding out expenditure on other priorities.

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