A government funds high-speed broadband connections for remote villages. Local firms say that slow internet has prevented them from selling to global market...
Question 1 Report
A government funds high-speed broadband connections for remote villages. Local firms say that slow internet has prevented them from selling to global markets.
(a) State the type of government policy that aims to increase the productive capacity of the economy. [1]
(b) Explain how broadband investment could increase labour productivity. [2]
(c) Analyse how increased productivity may affect economic growth and inflation. [3]
Answer Details
(a) This is a supply-side policy. [1] Supply-side policies aim to raise the economy's productive capacity, meaning the maximum output it can produce.
(b) Faster broadband improves communication, so workers can complete tasks more quickly. [1] Firms can also use online systems or serve wider markets with the same number of workers. [1] Output per worker therefore rises, which is an increase in labour productivity.
(c) Higher productivity raises output per worker, increasing potential output and real GDP, so it can increase economic growth. [1] It may also reduce unit costs, because the same output can be produced with fewer resources per unit. [1] Firms may then avoid raising prices, or lower prices, reducing inflationary pressure. [1]
The key distinction is that broadband is not simply extra short-run spending: it can make production more efficient over time.
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