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Appendix 2.1 Components of Economic Growth

Appendix 2.1 Components of Economic Growth . Determinants of Economic Growth. Capital Formation Physical capital formation: investment in tools, equipment, machinery, buildings Social capital formation: investment in roads, dams, airports, railroads, bridges

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Appendix 2.1 Components of Economic Growth

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  1. Appendix 2.1 Components of Economic Growth

  2. Determinants of Economic Growth • Capital Formation • Physical capital formation: investment in tools, equipment, machinery, buildings • Social capital formation: investment in roads, dams, airports, railroads, bridges • Human capital formation: investment in education, training, health, nutrition

  3. Determinants of Economic Growth • Labor Force Investment • Increase in the size of the labor force • Improvement in female labor force participation Caution: Population and labor force should not grow more rapidly than the economy

  4. Determinants of Economic Growth • Technological Advancement • Increase factor productivity (labor, land, capital) Caution: Must use the kind of technology that is consistent with resource endowment of the economy

  5. Production Possibilities Curve • Maximum quantities of two good and services the economy can produce, assuming: • full employment / efficiency • fixed resources • constant technology

  6. PPC Schedule A B C E Combination 100 90 50 0 Radios Rice 0 40 80 100

  7. PPC Graph Combinations A, B, C, and E are attainable Combination D is unattainableCombination F is inefficient Radios A 100 B D 90 C 50 F E 40 80 100 Rice

  8. Economic Growth Combination D becomes available with more resources and better technology Radios A 100 B D 90 C 50 E 40 80 100 Rice

  9. Economic Improvement Radios Combinations G (or B or C) becomes attainable with more employment or improved efficiency A 100 B 90 G C 50 F E 40 80 100 Rice

  10. Technological Advancement Neutral: proportional increase in the supply of Rice and Radios Radios Rice

  11. Technological Advancement Capital augmenting: greater increase in the supply of Radios Radios Rice

  12. Technological Advancement Labor augmenting: greater increase in the supply of Rice Radios Rice

  13. Technological Advancement Advancement only in agricultural production Radios Rice

  14. Technological Advancement Radios Advancement only in industrial production Rice

  15. Factor Accumulation Accounts for Only a Fraction of Growth

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