chapte8 - Ch. 8 Economic Growth What are the sources of...

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Ch. 8 Economic Growth What are the sources of economic growth? What are the prospects for the future U.S. growth rate? I. Sources of growth: two categories A. Growth that is “Extensive” If more resources being used are at the root of the increased output, the growth in the GDP is extensive. One can assess whether more inputs are being used among each of the four factors of production: Land – are more natural resources being used to fuel the growth? Land includes acreage (surface area) water, minerals, trees. Market prices for resources directly relate to their rates of extraction. Labor – are people working more hours? Have new groups been brought into the labor force? Capital – the growth is extensive if it requires usage of more machines, factories, and computers. The book gives the example of a city necessarily having more capital than a small town. Entrepreneurial activities – are more people taking the risk to start their own business, to organize the necessary factors of production and selling their output? If so, this too is a source of extensive growth. You can see with all four that the key question for growth to be “extensive” is whether more of a factor is required to fuel the output.
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B. Growth that is “Intensive” 1.If the increased output is resulting not from more resources being used but instead through more productive use of already working factors of production, the growth is “intensive.” It is more output as a result of greater productivity, which itself is often a result of technological advancement. Land – Technology improves over time to better extract resources from the land, to extract these resources from ever more remote locations, and to make it profitable to get resources from previously untapped forms, such as efforts to gain petroleum from the “oil sands” of Alberta, Canada. Labor – “Human Capital” is the education and skill level of a labor force. When human capital rises, so does productivity. Capital – Technological improvement, the better trained workforce, and more efficient production processes can be sources of intensive growth through capital improvement Entrepreneurial activities – Computer programs, small business coalitions or cooperative organizations can aid in the productivity of this factor of production. 2. The introduction or strengthening of Economic institutions like the corporation, the patent and other property protections, and contract enforcement also help entrepreneurs. 200-201 describes the policies that do this.
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II. Productivity A. Productivity is often defined by value of output/ unit of input where the unit of input for, say, labor productivity, is an hour of work. So if a worker can generate $100 of output for his firm in one hour,
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chapte8 - Ch. 8 Economic Growth What are the sources of...

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