Interventionist policies: the government itself invests to raise capacity.
Five interventionist policies
Education and training
Better skills raise each worker's output. Singapore pays adults credits for courses (SkillsFuture, from 2015).
Health care
Healthier workers miss fewer days and work longer.
Research and development
New ideas and products: South Korea spends about 5% of GDP on R&D.
Infrastructure
Roads, rail, ports and broadband cut firms' costs. China built over 40,000 km of high-speed rail.
Industrial policy
Support for chosen industries: grants, cheap loans, training.
The points to remember
- Write it like this: "Interventionist policies raise the quantity and quality of the factors of production, so LRAS shifts right."
- They cost the government money, unlike most market-based policies.
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Better skills or better roads let the economy produce more.
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Remember it as: Invest in people, ideas and roads: LRAS right.
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The same spending works on both sides of the economy.
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The points to remember
- Now: government spending is part of AD, so AD shifts right.
- Later: the new skills or roads raise capacity, so LRAS shifts right.
Paper 2 asked this in May 2024 and May 2025, for 4 marks.
Using an AD/AS diagram, explain how higher government spending on infrastructure could affect the full employment level of output.
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How the 4 marks are given
| Marks | What your answer needs |
|---|---|
| 3–4 | A correct diagram and a correct explanation |
| 1–2 | A correct diagram or a correct explanation, not both |
| 3 at most | A diagram with a wrong or missing label |