Public Policy and Economic Growth Practice Test

A government permanently increases funding for public universities in STEM fields and expands lab facilities, with the stated goal of increasing the economy’s long-run potential output. Based on the policy described, which statement best distinguishes a long-run growth policy from a short-run stabilization policy?

A government introduces a permanent 20-year R&D tax credit for private firms that increases after-tax returns to innovation, with the stated goal of raising long-run living standards. Based on the policy described, which mechanism best explains how the policy can increase long-run economic growth?