Question

Identify 2 factors that you believe cause an economy to grow. Describe how these factors might increase output or incomes over time. As you think about this, consider that not all economies grow at the same rate. If you have information about differences in growth rates across countries, use this information to inform your thought process.

Answer 1

two factor which I believe cause economy to grow is human resource and physical capital formation .

Human resource

The quality and quantity of human capital can lead to an economic growth .labour is one of the important factor of production .labour can be further classified in skilled unskilled labour .if a labour is skilled its capacity to contribute to growth will decidedly be high. The productivity of illiterate, unskilled, disease ridden and superstitious people is gener­ally low and they do not provide any to developmental work in a country. But in case human resources remain either unutilized or the manpower management remains defective, the same people who could have made a positive contribution to growth activity prove to be a burden on the economy. For example in India skilled labour are very cheap therefore it provide India competitive advantage over other countries, both the ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing) in India today contribute to around 9.5% of the country’s GDP and employs around 3.5 million people.

Capital formation

The role of capital in raising the level of production has been acknowledged since ancient times in economics. The country who wants to accelerate its economic growth need huge capital formation. Economists rightly assert that lack of capital is the principal obstacle to growth and no developmental plan will succeed unless adequate supply of capital is forthcoming. The importance of the Gross Capital formation lies in the fact that this is that part of GDP which helps in the growth of the GDP itself. This is a must for achieving high rate of production, capital formation, changes in production techniques and changing in the outlook of the people themselves To achieve, the Optimum rate of economic growth, the rate of capital formation should be above 40%. In India, the gross capital formation for the year of 2016 was 30% of the GDP .In china gross capital formation was 44% of gdp .

Due to difference in capital formation between India(30%) and china (44%) there is difference in development and growth rate of both country .