Question

2. Productivity, growth, and the per-worker production function Suppose you were in charge of establishing economic policy for a small island country whose only industry is fishing. When people aren't fishing, they're enjoying leisure time with their families. Which of the following policies would lead to greater economic growth? Check all that apply. Limiting the work week to 35 hours to help workers spend more time with their families Subsidizing research and development into new fishing technologies Imposing a tax on fishing boats (a form of capital) Lowering the income tax, assuming that it encourages people to work longer hours

Answer 1

Answer: Lowering the income tax, assuming that it encourages people to work longer hours.

Subsidizing research and development into new fishing technologies

Explanation:

When the income tax level is lowered, it will have the effect of people having more money in their pocket. They will therefore work for longer hours to capitalise on this opportunity to make more money from fishing. As they do so the Economy will benefit and grow as more fish will be caught and processed. It will also be good for the government because even though the tax rate is less, it will now be charged on more income so revenue will still be made.

By subsiding research into better fishing technology, the people can learn of better ways to fish to increase the output in the Economy and once implemented these new technologies would lead to Economic growth.