| 1. |
Growth economics deals with the
long-run changes in production capacity over time.
- Economic growth means an increase in the per
capita real output of an economy and is measured in terms of the annual percentage rate of
growth of per capita real output.
- Economic growth is important because it lessens
the burden of scarcity; it provides the means of satisfying existing wants more fully and
fulfilling new wants.
- One or two percentage point differences in the
rate of growth result in substantial differences in annual increases in the economy’s
output.
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| 2. |
Whether economic growth can occur depends on
supply
demand
and efficiency factors:
- supply factors include the quantity and quality
of resources (natural
human
and capital)
and technology;
- demand factors influence the level of aggregate
demand in the economy that is important for sustaining full employment of resources; and
- efficiency factors affect the efficient use of
resources to obtain maximum production of goods and services (productive efficiency) and
allocates them to their highest and best use by society (allocative efficiency).
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| 3. |
Two familiar economic models can be used for
the analysis of economic growth.
- In the production possibilities model
economic
growth shifts the production possibilities curve outward because of improvement in supply
factors that
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- increase real output by increasing the labor
inputs and by increasing the productivity of labor (in equation terms: total output 5
worker-hours 3 labor productivity);
- however
whether the economy operates on the
frontier of the curve depends on demand factors affecting the full employment of resources
efficiency factors affecting full production.
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- In the aggregate demand—aggregate supply
model
economic growth is also affected by these supply
demand
and efficiency factors.
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- Supply factors that contribute to economic growth
shift the vertical long-run aggregate supply to the right in the model.
- But since the price level has increased over
time
this suggests that the increase in potential output has been accompanied by an even
greater shift in aggregate demand (and its underlying demand and allocative factors).
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| 4. |
Over the past 50 years
the growth record of
the U.S. economy has been impressive
but economic growth in America has been less
impressive than the record of many advanced industrialized nations in recent decades.
- Economic well-being may be understated by
economic growth figures because the figures do not take into account improvements in
product quality or increase in leisure time.
- But growth may have adverse effects on the
environment or the quality of life that are not reflected in growth figures
thus the
figures may overstate the benefits of growth.
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| 5. |
Many factors account for the economic growth of
the United States since 1929.
- Two-thirds of this growth was the result of the
increased productivity of labor
and one-third of it was the result of the increased
quantity of labor employed in the economy.
- During this period the U.S. population and its
labor force expanded
and despite decreases in the length of the workweek and birthrates
the increased participation of women in the labor force and the growth of its population
continue to expand the size of the labor force by two million workers a year.
- Technological advance is combining given amounts
of resources in new ways that result in a larger output
and since 1929
it accounted for
28% of the increase in real national income.
- Saving and investment have expanded the U.S.
economy’s stock of capital; increased the quantity of tools
equipment
and machinery
with which each worker has to work; and accounted for 20% of the increase in real national
income since 1929.
- Increased investment in human capital (in the
training and education of workers) expands the productivity of workers
and accounted for
12% of the increase in real national income.
- Economies of scale and the improved allocation of
resources also expand the productivity of workers; since 1929
each has contributed 8% to
the U.S. real national income.
- But such detriments (or deterrents) to the growth
of productivity as the government regulation of industry
pollution
and worker health and
safety divert investment away from productivity-increasing additions to capital. They
accounted for a negative 9% of the increased real national income since 1929.
- Other factors that are difficult to quantify
such as a general abundance of natural resources and social-cultural-political
environment
have also contributed to economic growth in the United States.
- While the actual economic growth in the United
States averaged 2.9% per year since 1929
it would have been higher by .2 to .3 percentage
points if the economy had achieved its potential level of output and not experienced
depression or recession.
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| 6. |
The annual rates of growth in labor
productivity in the United States declined substantially during the 1970s and rose only
modestly during the 1980s and early 1990s. Productivity rates achieved in the United
States are also less than those found in other major industrial nations such as Japan or
Germany.
- The slowdown in the growth of labor productivity
is significant because it affects the standard of living
inflation
and the prices of
U.S. goods in world markets.
- The suggested causes of the productivity slowdown
have included
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- labor quality – a decline in the quality
(education
training
and experience) of the U.S. labor force;
- less technological progress – a decline in
research and development expenditures as a percentage of GDP;
- low investment – reduced investment in
capital goods as a percentage of GDP than in previous periods stemming from low saving
rates
import competition
regulation
and less spending for infrastructure;
- high energy prices – higher prices in 1973
— 1975 and 1978 — 1980 increased production costs and had inflationary and
adverse macro policy effects on the economy;
- low growth of service productivity – the
lack of substitute resources
less competitive pressure
and the demand for higher quality
services contributed to this condition.
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| 7. |
Productivity and economic growth showed
substantial improvement in the 1990s compared with the 1970s and 1980s. These developments
caused some economists to wonder whether a “new economy” has developed based on
improvements in computer technology
communications
and global capitalism. The question
is whether these increases in the rates of productivity and economic growth represent a
long-run trend or a short-run boom to be followed by macroeconomic instability.
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| 8. |
Two economic policies have been discussed for
achieving more economic growth in the United States.
- Demand-side policies focus on the use of monetary
and fiscal policies to influence aggregate demand and maintain full employment and full
production of resources.
- Supply-side policies call for expansion of the
economy’s output potential and often involve changes in education and training and
new tax policies to increase investment
saving
and work effort
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