Answer to Question 1
In democracy, individuals have the right to demand resources from the state. In addition, the interest groups and political parties try to protect and advance the private interests of their supporters at the expense of public interest. The governments respond to the louder and betterorganized specialinterest groups for increased spending on particular programs rather than to overall public opinion. This leads to an increase in taxes, potentially crowding out money for investment in the private sector. In contrast non-democracies can make better investment decisions with no crowding out of the private sector, as they are more insulated from the demands of political parties, interest groups, and lobbies. Hence, scholars suggest that democracy hinders economic growth.
Answer to Question 2
D
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economic question