Policies to promote economic growth

A government may use some policies to promote economic growth in 3 ways:
1)Shorh run
2) long run
3)stable growth

1)Short run growth: the main aim is to increase output, this can occur due to increse in AD.
increase may be stimulated by expansionary fiscal or monetary policy. Also fiscal and monetary policies have advantage that they can increase both AS and AD. For instance, a lower rate of interest is likely to increase consumption and also investment. Therefore higer invectment will result in growth of AS. Increases in some forms of government spendings, such as education and development will also shift the AS curve to the right.

2) Long run: the growth can be achieved if only productive capacity of the economy increases. That's why changes in AS are so important. For example, for long-run growth to happen, the quality and/or quantity of resources has to increase. Measures that raise investment will increase AS. The speed of the increase in AS will depend on the amount of extra investment, its type and how efficiency it is used. To use the capital efficiency it is vital to have educated healthy workers.Investment in human capital(education,training and experience that a worker possesses) will lead in increase of the productive capacity of the economy. However,the extent to wich this occurs is influenced by the appropriateness and the quality of the investment. TO be productive, workers need a range of skills such as numeracy,literacy,ICT and personal qualities.

3) Stable growth: this is the way,which governments are seeking to promote economic growth. The target is for actual growth to match trend growth(the expected increase in potential output over time) and for that trend growth to rise over time. Governments avoid AD increasing faster than the trend growth rate permits,since this can result in the economy overheating with inflation and balance of payments problems arising. They also try to prevent AD rising more slowly than the trend growth rate, since this would mean a negative output gap developing with unemployed resources.In other words government seek to avoid economic cycles.

There is some useful video about economic growth and fiscal policy.