You are the senior Economic advisor to the Prime Minister who is currently considering how to reduce the cost of having children and promote more economic growth. Some of her party want to continue John Howardâ€™s â€œbaby bonusâ€ scheme that provides a lump sum of cash to parents upon the birth of a child. Others argue that the government should instead aim to focus on lowering the costs of educating children by making tertiary education free.
A) Discuss how each of these options will affect wages and labour productivity, potential GDP and real GDP. Will they lead to growth in real GDP and rises in real GDP per capita? use the potential GDP and labour market diagrams in your answer. (6 marks)
B) Imagine that whatever strategy will be chosen, it will be kept for the next three decades. In terms of achieving growth in the long run, discuss which strategy would lead to higher growth rates and explain why (2 marks)
C) How would each strategy affect the standard of living? (2 marks)