How does government support of health and education programs ...

[iveyjurea]

How does government support of health and education programs foster economic growth?
 
  What will be an ideal response?

Question 2

Suppose you obtain a fixed rate mortgage during a period of relatively high inflation. During the next ten years, inflation falls. Are you a winner or a loser due to inflation? Explain why.
 
  What will be an ideal response?

[cat123]

Answer to Question 1

As the health of the people in a nation improves, they become more productive. They become stronger and less susceptible to disease. For example, if the government provides vaccinations or access to clean water, people will be healthier and the economy is more likely to grow. By helping to finance education, the government can also improve economic growth. Since the benefits of an education do not accrue exclusively to the person receiving an education, the market may produce an inefficiently low level of education and training. If the government offers subsidies for education, more people will receive an education, and the increase in human capital will increase economic growth (particularly if there are increasing returns to human capital).

Answer to Question 2

You would be a loser under this scenario. Your mortgage rate is the sum of the real rate of interest plus the amount of inflation that was expected over the life of the mortgage. When inflation is high, people's expectations of future inflation are high. In those circumstances, your fixed mortgage rate contains a high expected-inflation premium. Therefore, as inflation falls, the real rate of interest on your mortgage increases.

[iveyjurea]

Thank you

[cat123]

No problemo