Question

The long-run growth is measured as the increase in real GDP per capita and this measure has changed over time and it also varies across countries. A country’s standard of living depends on its ability to produce goods and services (productivity).

1. How do we measure long-term economic growth of a country? What are the key determinants of long-run economic growth?
2. What is the relationship between economic growth and productivity? What is the major source of growth in labor productivity?

Answer 1

a.

• The long term ecomic growth of a country is measured by three factors that are:
• Technically advancements
• Increase in the number of workers or increase in the number of total work hours produced in a country and
• Increase in the amount of capital hold by a country

The key determinant in long term growth is the advancement in technologies present in the country because as per the concept of diminishing returns of work hours and capital remain constant than growth will decline and hence technological upgradation is required for long run economic growth.

b. The economic growth and productivity is directly proportional as with the increase in productivity the same amount of inputs can be used to give more outputs and this will this increase the revenue and therefore will increase the GDP.

Labor productivity can be increased by investing in new technologies and by investing in the human capital.