• The government can select and promote specific sectors or activities

• i.e if a country needs infrastructure, government support for this is crucial for the function and growth of the economy

2) Ability to create employment

Investments in education and training can reduce unemployment by:

• enabling workers to acquire the skills, to meet the necessary needs of employers

• providing assistance to workers to relocate (structural unemployment)

• providing information that reduces unemployment when workers are between jobs or between seasons

3) Potential ability to reduce inflationary pressure

• inflationary pressures can be reduced by increasing potential output

4) Possible positive effects on equity

• Investments in human capital are likely to have positive effects on equity in the long run because educated, skilled and healthy workers are more likely to be employed and create an active and productive part within society. Likely resulting in income to be relatively more equally distributed

• indicates time policies are implemented to when they start taking effects

• effect cannot take place in short-run but only in long-run

• new investments, human capitals, and physical capitals requires time to be realised and to become effective

2. Negative impact on the government budget

• increase in government spending on public goods --> negative effect on government budget

• the more government spends while revenue stays the same --> the larger the government budget deficit

  • future generations will suffer more from high tax to repay government spending