Growth in Productivity

Question 1

Labour productivity

Answer 1

output per unit of labour input where the input is usually hours but may be employees.

Question 2

Total Factor Productivity

Answer 2

output per unit of all inputs - including both labour and capital

Question 3

Ways of GeneratIng the GDP

Answer 3

By summing expenditures - that is, the total expenditures required to buy final output (consumption + investment + government purchases)
By summing income and claims on the value of output (mainly, wages + interest + business income).

Question 4

Difficulties with the GDP-Government Expenditures

Answer 4

Most government expenditures are decided by beaurocrats and are thus a less reliable measure of public wealth
Every time someone purchases an item like an iPad, we can assume it makes them better off
However government purchases don’t necessarily reflect the personal choice of one person, they don’t necessarily bring direct benefit to each person

Question 5

Difficulties with the GDP-Private Expenditures

Answer 5

→ Some expenditures cannot normally be viewed as improving well-being
→ Ex. the gasoline consumed while sitting in a traffic jam.
1. After a mortgage has been paid down home ownership does not show up in GDP totals.

2. The GDP figure does not record quality improvement very well
   → A modern lap top computer is a very much better machine than the PCs that were sold in the 1980s. But the prices are currently lower.
3. In a country with high inequality GDP per capita (or per hour worked) is a poor indicator of the well-being of a large part of the population.
4. The benefits of intellectual property and capital equipment are to be spread over the long run because they are constantly being used, however these benefits aren’t always recorded
   → In 2009 Australia started incorporating expenditures on R&D in its GDP figure (for some period of time over which the expenditure was thought likely to have yielded benefits). Canada followed suit in 2012. This is reasonable. But a problem is that not all R&D expenditures yield benefits. And the changes in policy (in Australia, followed with a lag by Canada) do suggest some arbitrariness.
5. Intellectual property is dealt with confusingly in the GDP
   → Defensive Patenting: Companies get patents so that when they are sued, they can countersue
   → Does not reflect living standards
   → Patent Trolls: Whenpeople or companies that misuse patents as a business strategy, they enforce patents beyond their actual value.
6. The Shadow Economy: People spend money on things that aren’t necessarily recorded
   → What should be done with expenditures on illegal activities like sales of prohibited drugs, prostitution, bribes?
   → It is argued that this should be included in the economy because it is part of the choices people make to improve living standards
7. The improvement of one’s well being from having access to the internet will not show up in the GDP

Question 6

What produces rising labour productivity?

Answer 6

→ More capital equipment per worker
→ Better capital equipment per worker
→ Better organization of production so that people’s time is used more effectively
→ Better training and education so that people can do their work better and efficiently use the capital equipment with which they are provided
→ Improved product quality, which may or may not show up in GDP output.
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