Question

Explain how economic growth can happen? What are some of the needed resources? what makes technology very important? Should policymakers push for more consumption as a way to stimulate economic growth?
Please answer each question above on a separate line/paragraph.

Answer 1

Economic development occurs when the manufacturing potential of a nation increases. In other words, the goods and services producers in the country are capable of making more stuff. The U.S. economy has averaged well behind China , India, and other countries under three per cent growth in recent years. The amount of production can be determined by gross domestic product ( GDP), which is the overall dollar value of the goods and services produced in the year in question. Manufacturing goods and services demands raw materials and other resources. When a new source of raw materials is discovered such as oil or lumber more goods are made. Because of the drilling, the US is now the world's largest producer of natural gas. When labour, including skills and general knowledge, gains more human capital, producers gain the tools to make more goods and provide more services. That is one reason why the reform of education is so important.

Economic growth can be generated by three factors: growing resources, more labor and efficient use of existing capital or labor. Growth resulting from capital and labor rises reflects growth as a result of increased inputs. There are limits on how much raising capital improves, and growing labor also often means more mouths to feed and so the standard of living (real GDP per capita) does not (by itself) increase. Sustainable long-term growth benefits from better use of existing capital, increased economic production per input and thus improved productivity.

Discovering new processes , tools, or devices can result in a huge productivity jump. For example, the assembly line invention spurred the manufacture of automobiles, clothing and toys. As creativity leads to new developments it helps the entire economy.

This Consumption Theory contrasts with the historical record of economic development. Economic gains (booms) and decreases (bust) have also been driven by shifts in industry and investment in renewable goods, while demand on end consumer products has remained fairly steady across the business cycle. Booms and bustings have long been leading indicators of recession and recovery in capital markets, heavy industry and housing. The dot-com boom and bust, the Great Depression, and all of our current crisis show the pattern. Moreover, since GDP is a summary of the accounting, it adds together consumption and investment spending. But this summary masks the fact that in the short term these two activities are indeed in opposition. We have to save more, and spend less, to save more today. As a result, GDP in and of itself does not say anything about what makes an economy grow; at best it shows how large the economy is and whether it is rising or shrinking