Question

Our economic well-being (RGDP per capita) increases when output per person rises (called productivity), average working hours increase, or the employment-population (EPR) increases. However, only one of these components significantly contributes to a rise in our standard of living and economic growth, productivity.

(a) Explain why the other two components ( average working hours and EPR) are not a significant contributor to our economic well-being.

(b) Provide the three types of investment that can cause long term growth and productivity.

(c) Provide what does the government does to promote long term growth?

Answer 1

a) Real gross domestic product per capita measures the worth of ultimate product associated services made domestically at intervals an accounted year divided by the entire population corrected for inflation. This parameter is economical than others mentioned within the question as a result of a county will give additional robust|an improved} commonplace of living by providing higher wages if it's manufacturing more (higher RGDP)

i) Average operating hours: in developed countries, the USA has lower average operating hours than developing countries like Republic of India. however with a lower average operating hour does not guarantee that contribution to the output is low and vice-versa. The USA might have higher techniques that take lesser time to get output than a developing nation.

ii) EPR: This live the country's working-age population that's used. it conjointly includes those that stopped trying to find jobs as a result of they are available beneath the working-age population. therefore the validity of the information is questionable. although employment conjointly does not guarantee growth in this sector, say as a result of if individuals square measure over-employed then the Marginal Productivity can decline.

b) Residential investment: this sort of investment is incredibly volatile, it constitutes of real-estate investment.

ii) Business mounted investment: this sort of investment depends upon the speed of interest, firm's ratio, government policies, etc. this sort of investment is finished to reinforce the assembly method. it are often within the sort of getting capital, investment shackled, etc.

iii) Inventory investment: it's the part of gross domestic product. it's that portion that the firm produces at amount t and plans to sell it in amount t+1. it's conjointly known as as associate addition to the stock of the firm.

c) shortly speaking, the govt tries to stay the charge per unit terribly stable, that provides confidence to the investors. It ensures lesser crowding-out impact by keeping the rate of interest sensible for investment purpose for reinforcing domestic investment. offers subsidies to spice up production in backward areas, develop and repairs existing infrastructure like roadways, etcetera. these all factors can guarantee long run growth.