With these policies, there is the presupposition that free market economy cannot achieve the desired results of increasing potential output.

Investment in human capital

Training and Education

The increase in the quality of labour resources is a key of economic growth. There are also numerous positive externalities of education, assisting workers to be more employable. It also includes governments hiring, providing grants to offer training, subsidies to higher structurally unemployed workers, assisting workers who face difficulties.

Health care services

When workers have access to higher quality health care services, they are more productive. Positive externalities too, justifying the governments intervention. The change can also impact Aggregate demand in the short run.

Investment in Technology

Improvements in technology can lead to increased efficiency, more quantity produced and overall economic growth. Research and development also has positive production externalities.

Investment in Infrastructure

These are mostly public goods, like transportation, telecommunications, and irrigation systems, stuff like that. The physical capital benefit improves labour productivity. They increase aggregate demand over the short term, but also contribute to potential output increases in the long term.

Industrial policies

Supporting small and medium sized firms in the form of tax exemptions, low interest loans, promoting efficiency, and more employment possibilities, increasing demand and potential output. Also, providing support for infant industries, it provides growth for the private sector and increases AD and AS.

Note: Hey, theres a lot of these policies that increase Aggregate Demand, but i feel like i still can’t specifically explain why.

Evaluation

Constraints

• Time lag
• and it costs a lot. Overall pretty little bad things!

Strengths

• Direct support of certain sectors
• Employment!
• Equity is good.