Question

Your author claims that the U.S. economy can increase its real output (growth) by: (1) increasing its inputs of resources and (2) by increasing the productivity of those resources. Briefly explain how the U.S. economy would be able to increase both.

Answer 1

US ECONOMIC GROWTH

Economic growth means an increase in national output and national income and is measured by real GDP. Economic growth is caused by two main factors:

• An increase in aggregated demand (this means an increase in American consumption)
• An increase in productive capacity

In this question, the author claims that US economy can increase by increasing productive capacity. Productive capacity can increase for the following reasons:

• Increased in capital. For example, investing in new factories or infrastructure. With more capita, the productive capacity of a country increases.
• Increase in inputs. Increase in working population and intensive use of raw material are some examples.   
• Increase in labor productivity. Through better education and training.
• Technological improvements. Technology improves productivity of capital and labor.

The United States has great capacity to have economic growth by increasing its productive capacity. For instance, the United States is a country with a large and young population, as well as the phenomena of migration in this country that increase labor supply. More labor supply means more capability of producing.

On the other hand, in the United States are the best universities in the world, this allows the country to attract the brightest people from around the globe. By having a highly qualified workforce, it is possible to increase real GDP through productive capacity, since these people provide effective and innovative solutions that increase productivity.

Also, the United States has a strong, growing economy, which is attractive to domestic and foreign investors. Investments create more capital, infrastructure and jobs. In short, it creates greater productive capacities for the country.

Finally, the United States is a leader in the research of new technologies, which represents a sale to increase the productive capacity. Technology allows more efficient processes, where inputs are better used, more is produced and waste is reduced or exploited.