Which of the following Policies will lead to increase in potential output in the long run?1.Increase in Taxes on business investment2.Policies that encourage more saving for retirementWhich of the statements given above is/are correct?

Q. Which of the following Policies will lead to increase in potential output in the long run?
1.Increase in Taxes on business investment
2.Policies that encourage more saving for retirement
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: B

Notes:

Taxing investment discourages investment in capital, which decreases potential output.

Policies that increase savings increase the supply for loanable fund, which lowers the real interest rate. This may encourage firms to increase the stock of capital which increases potential output on the long run.

Source- Article

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