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Components of Economic Growth

The three main components of economic growth are: 1. Capital accumulation, which includes investments in physical equipment, infrastructure, human resources through education and training, and health improvements. This allows output levels to be expanded. 2. Growth in population and the labor force. A larger labor force can stimulate growth, but this depends on the ability of the economy to productively employ additional workers through sufficient capital accumulation and skills. 3. Technological progress in the form of inventions and innovations that allow higher output levels with the same or fewer resource inputs, or that increase the productivity of existing capital and labor. This includes neutral, labor-saving, capital-saving, and labor/capital-augmenting technological changes.

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Mark Alvin De Leon
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87 views4 pages

Components of Economic Growth

The three main components of economic growth are: 1. Capital accumulation, which includes investments in physical equipment, infrastructure, human resources through education and training, and health improvements. This allows output levels to be expanded. 2. Growth in population and the labor force. A larger labor force can stimulate growth, but this depends on the ability of the economy to productively employ additional workers through sufficient capital accumulation and skills. 3. Technological progress in the form of inventions and innovations that allow higher output levels with the same or fewer resource inputs, or that increase the productivity of existing capital and labor. This includes neutral, labor-saving, capital-saving, and labor/capital-augmenting technological changes.

Uploaded by

Mark Alvin De Leon
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© © All Rights Reserved
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COMPONENTS OF ECONOMIC GROWTH

so, three components of economic growth are of premium importance this is

* CAPITAL ACCUMULATION which includes all new investments in land physical


equipment and human resources through improvements in health education and job skills.
-results when some proportion of present income is saved and invested in order to augment
future output and income so it is simply increasing a country's stock of real capital and when we
say stock it is net investment in fixed assets to increase the production of capital goods it
necessitates a reduction in the production of consumer goods so remember consumption giving
up a little now so that more can be had later to move factories machinery equipment and
materials increase the physical capital stock of a nation which is the stock the total net real value
for physically productive capital goods this makes it possible for output levels to be expanded
these directly productive investments are supplemented by our primarily private by investments
in what is known as social and economic infrastructures infrastructure which is which are roads
electricity water and sanitation communications have a have an effect on production as an
increase in human numbers so investments in human resources include form a schooling
locational and on the job training programs and adult and other types of informal education so
these may be effective in enhancing human skills as a result of direct investments in buildings
equipment and materials improved health can also significantly boost productivity of existing
human resources through investments so capital accumulation may add new resources or upgrade
the quality of existing resources .

* GROWTH IN POPULATION and more importantly the eventual growth in the


labor force because of that growth in population.

-and the associated eventual increase in the labor force have traditionally been considered a
positive factor in stimulating economic growth A larger labor force means more productive
workers and a large overall population increases that potential size of domestic markets right so
this depends on the ability of the economy to absorb and productively employ additional workers
and that ability to absorb a productively employee added workers depends on the rate and kind of
capital accumulation and availability of well other related factors such as managerial and product
and skills in physical and human resources so the production possibility curve ill could help
show the effect of increases in physical in human resources so assuming the production
possibility that can be produced when all the available factors of production are efficiently
employed so on the PPF all the available factors of production are efficiently employed given
available resources so for a given technology and a given amount of physical human resources
the production possibility curve portrays the maximum attainable output combinations of any
two commodities when all resources are fully and efficiently employed so initial possibility for
the production of race in technology or investment in new resources plan capital indicates of
larger families labor shows a doubling of total resources that will cause the entire production
possibility curve to shift uniformly toward people so where is economic growth here suppose
first initially you were producing a point x okay then you could produce more to x prime
eventually to even beyond the black curve but within the blue curve so the process of economic
growth is that being able to produce more and more of both goods so even if the country is
operating within with underutilized physical and human resources simply x a group of resources
can result in a higher total output combination such as x prime there is nothing fixed about
resource growth leading to higher output growth such as depicted in this outward expansion of
the PPF even many developing countries expansions increases in physical in human resources so
resource it's also not a necessary condition for short-term growth because the battery utilization
of idle accessing resources can raise output level substantially for example even without the
outward expansion to this blue line within this there still can be gross if you started point x where
there are underutilized resources and then you try to maximize whatever resources you have to
growth in population does not necessarily translate to economic growth so instead production .

* TECHNOLOGICAL PROGRESS which means new ways of accomplishing tasks.

-say only capital only land is increased in quality and quantity so here we can depict the
technological progress a freedom manufacturing is a relatively large user of capital equipment
and rice production is a relatively land intensive process when capital grows rapidly The shift in
the PPF will be more pronounced for radios since it is capital intensive and it will be more
pronounced for rice if there is a when labor grows rapidly do in both cases are both products will
require the use of both factors as productive inputs abate in although in different combinations
The other product could be produced there could be more a production of the other product bye
so here with the big the third and possibly the most important source of economic growth defined
as increased application of new scientific knowledge in the form of inventions and innovations
with regard to both physical and human capital so example should be new and improve ways of
growing crops making clothing or building a house there are three basic definitions of
technological progress :
A. NEUTRAL

-occurs higher output levels are a when higher output levels are achieved with the same quantity
and combinations of factor inputs.
B. LABOR-SAVING
-technological progress is that you meant of higher up with using an unchanged quantity of labor
in what's a result of some invention a computer or innovation such as the assembly line.
C. CAPITAL SAVING
-progress that results from some invention or innovation that facilitates the achievement of
higher output levels using the contain quantity of inputs of capital.
D. LABOR AUGMENTING
-that traces the productivity of an existing quantity labor by general education on the job training
programs and so on it occurs when the quality or skills the labor force are upgraded such as for
example the use of televisions and other electronic communications media for classroom.
E. CAPITAL AUGMENTING -technological progress raises the productivity of capital by
innovation and inventions for example the substitution of steel for wooden plows in agricultural
production.
So that's an overview of the components of economic growth We now turn to our theories.

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