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