The president of a poor country has announced that he will implement the following measures that he claims are designed to increase growth: 1.Reduce corruption in the legal system;2.Reduce reliance on market forces because they allocate goods and services in an unfair manner;3.Restrict investment in domestic industries by foreigners because they take some of the profits out of the country;4.Encourage trade with neighboring countries;and 5.Increase the fraction of GDP devoted to consumption.How many of these measures will have a positive effect on growth?
A)1
B)2
C)3
D)4

Question

Quizplus · Accepted Answer

Reducing corruption in the legal system and encouraging trade with neighboring countries can have a positive effect on growth. However, reducing reliance on market forces, restricting investment in domestic industries by foreigners, and increasing the fraction of GDP devoted to consumption are unlikely to increase growth and may even have a negative effect. Restricting investment by foreigners can result in reduced investments overall, while increasing consumption is not a sustainable way to increase growth as it can lead to inflation and a trade deficit.

The President of a Poor Country Has Announced That He