Long-Term Policy Effectiveness Analysis
Consider the 20-year economic histories of two different nations:
- Country A: The central bank has consistently focused its policies on maintaining a low and stable rate of price increases, targeting 2% per year. Over the 20-year period, it largely succeeded, and the nation's real economic output grew at an average of 2.5% annually.
- Country B: The government and central bank have consistently used expansionary policies in an attempt to achieve a high rate of real economic output growth, targeting 5% per year. Over the 20-year period, the nation's real economic output grew at an average of 2.5% annually, while the average rate of price increases was 10% per year.
Based on these outcomes, what can you conclude about the long-term ability of these types of policies to influence the rate of real output growth versus the rate of price increases? Explain your reasoning.
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