L Describe Sources, Measurement, and Sustainability of Economic growth

Question 1

Sources of Economic Growth

Answer 1

Labor supply; pop growth, net immigration, LFPR

Physical Capital Stock; larger capital stock increases labor productivity and potential GDP; increased rate of inv. can increase econ growth

Human Capital; Education and skill level of the labor force: Better educated people take advantage of advances in tech and are more productive.

Tech:+productivity +GDP +Rates econ growth

Natural Resources: Raw material inputs: oil and land. Renewable or non-renewable

Question 2

Measurement of Economic Growth

Answer 2

Growth in potential GDP = Growth in labor force + Growth in labor productivity

Question 3

Sustainability of Economic Growth (important because long term equity returns rely on this; the rate of increase in the econs productive capacity; potential GDP)

Answer 3

Potential GDP = Agg. hours worked x Labor Productivity

Growth in potential GDP = Growth in labor force + Growth in labor productivity