Question

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?

Answer 1

Answer:

The correct answer is number (2): Reduce reliance on market forces because they allocate goods and services in an unfair manner.

Explanation:

Relying on market forces imply letting supply and demand freely decide the levels of quantity demanded and supplied goods and services and their corresponding prices. This scenario could lead to unfair market competition and inhuman labor standards. For that reason, government intervention is necessary to set fair rules for organizations and individuals within society.