Question

Define economic growth and explain the importance of increases in productivity in sustaining economic growth

Answer 1

Economic growth is an increase in the production over a given period of goods and services. To be most accurate, the measurement must eliminate the inflationary effects. Economic growth is generating more profit for companies. As a consequence stock prices are rising. That gives businesses the capital to invest and recruit more workers. As more jobs are created, revenues increase. Consumers have more resources to buy additional goods and services. Acquisitions are driving higher economic growth. It is for this reason that every country needs positive economic growth. This makes economic growth the economic variable most watched for.

Increases in inputs impose costs on society: increasing labor means less leisure time; increasing capital investment means lowering current consumption; and increasing material inputs reducing natural resource reserves. Growth in productivity is our chance to increase output without increasing inputs and incurring these costs. Historical or "time-series" data on output and hours worked show the importance of labor productivity increases to US economic growth. As of 1947, increases in productivity have enabled the U.S. business sector to produce nine times more goods and services, with a relatively small increase in working hours.

With productivity growth, an economy will increasingly be able to produce and consume more goods and services for the same amount of work. Productivity is essential to citizens (workers and consumers), business leaders, and observers (such as politicians and statisticians in government).