Question

your book lists (macroeconomics 10th edition) 5 sources of economic growth. List these sources of growth and choose one to describe in detail. Include an example of the source that you selected, as well as a brief description of how adding to that source year would lead to greater output in the future.

Answer 1

Sources of Economic Growth

1. Natural Factors.
   More land and raw materials should lead to an outward shift of PPF and thus an increase in potential growth. Quantity of natural factors such as land and raw materials like metals and oil could be small and even absent in some countries and the quantity cannot be easily increased.
2. Human Factor.
   The quantity of labour is a factor that contribute to growth. Bigger the population, larger is the labour force and further out is the PPF. Larger population can also means more entrepreneurs and a larger market that can sustain more industries. A country can increase in labour force by increasing its population but in reality all except Singapore is interested in this approach. Labour force can also be increased through a immigration policy that attracts skilled workers. However, the quantity of labour alone is not enough to guarantee economic growth.
3. Physical Capital.
   Physical capitals include factories, machineries, shops, malls, offices and motor vehicles. Cetera Paribus, higher savings rate can help to finance more physical capital investment. As the Harrod-Domar Growth Model suggests a higher savings rate means higher economic growth rate. This productive investment would help move the PPF outward, thus economic growth. Higher savings rate can also be used to finance education and training. This helps to form human capital and to improve technical skills that contributes to more productive labour force. However, the rate of investment may be so fast that a gap is developed between savings rate and investment rate. This gap can be bridged by borrowing from foreign commercial banks, World Bank, foreign countries, or by Foreign Direct Investment (FDI)
4. Institutional Factor A developed and efficienct financial system instills confidence in consumers to save with this financial institutions. In this case, savings can be fed back into the economy through the financial system as borrowing to firms.

5) Political Stability.

Basically, growth is usually possible in a stable political environment. Entrepreneurs in instable political environments will have less incentives to invests as they incur higher risk of losing their investments and properties through appropriation by government, of not being able to keep their profits, and having higher costs of transactions due to uncertainty. HUMAN Factor   

1. Social and cultural.
   1. Society that emphasize the importance of education and allows equal gender participation in economic activities could build more human capital and benefits its economy. Excluding women from education and economic activities effectively reduce the human capital by half. Protestantism (industrious work ethics) and Confucianism (respect for authority, industry, and emphasize the importance of education) have been attributed to the early phase of economic development in America, and the success stories in East Asia respectively.
2. Entrepreneurship.
   1. As frogs seeks wells,
      as birds a brimming lake,
      so too wealth and allies
      resort to a man with enterprise
      The quote clearly illustrates the importance of entrepreneurship.
   2. We want to think of this as the human resource which combines all the other resources [labor (L), capital (K), and technology (A)] to produce a product, makes non-routine decisions, innovates, and bears risks.
3. Education and training.
   1. We should think of education as an investment in Human capital that enables the development of skills, enlarges the capacity to gather knowledge and information, and improves the utilization of knowledge and/or information to increase productivity.
   2. College Diploma then can be regarded as having the capacity to learn new tasks and gather knowledge. An individual who has a good track record in learning can be seen as a resourceful and potentially productive worker with good ability to learn new skills.
   3. We should recognize that tertiary education (colleges and universities) confers the highest expected private returns (the returns could be increasing exponentially) with respect to private costs. However, primary education (which includes attainment of literacy, arithmetic skills, and elementary vocational skills) yields the highest social returns with respect to social costs.
   4. Education provides the economy with potentially resourceful and productive workers.
   5. Education also provides an opportunity to an individual to expand his/her range of economic and social choices, thus better human development.
   6. Moreover, studies have shown that educating women could improve child health, increase children performance in formal education, expand the range of economic and social choices, generate higher income, and lower fertility.