Political candidates have proposed the policies listed below to speed economic growth in recent years. For each, explain qualitatively the impact upon the growth of potential output and upon the growth of per capita potential output. If possible, give a quantitative estimate of the increase in the growth of potential output and per capita potential output over the next decade.
a. Cut the federal budget deficit (or raise the surplus) by 2 percent of GDP, increasing the ratio of investment to GDP by the same amount.
b. Increase the federal subsidy to R&D by 1A! percent of GDP, assuming that this subsidy will increase private R&D by the same amount and that R&D has a social rate of return that is 4 times that of private investment.
c. Decrease defense spending by 1 percent of GDP at full employment.
d. Decrease the number of immigrants so that the labor force declines by 5 percent.
e. Increase investments in human capital (or education and on-the job training) by 1 percent of GDP.