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Economic Growth

Economic Growth. An increase in productive capacity or an outward shift in the production possibilities frontiers (PPF). Causes of Economic Growth. Capital Accumulation An Increase in the Size of the Labor Force Population Growth An Increase in Labor Force Participation

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Economic Growth

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  1. Economic Growth An increase in productive capacity or an outward shift in the production possibilities frontiers (PPF).

  2. Causes of Economic Growth • Capital Accumulation • An Increase in the Size of the Labor Force • Population Growth • An Increase in Labor Force Participation • Technological Progress • Neutral Technological Progress • Capital-Saving Technological Progress • Labor-Saving Technological Progress

  3. Types of Economics Growth • Balanced Growth • Anti-Trade Biased Growth (Import-Replacing Growth) • Pro-Trade Biased Growth (Export-Expanding Growth

  4. Balanced Growth A proportional increase in the country’s endowments of factors of production such that the following ratios remain the same: • Capital to labor ratio; • Land to labor ratio; and • Land to capital ratio.

  5. With constant returns to scale, as the endowments of factors of production increase proportionally, so do production, consumption and the volume of trade. Balanced growth results in neutral production, consumption and the volume-of-trade effects. Effects of Balanced Growth

  6. If the increase in the endowments of factors of production is biased toward the import-competing industry, the country’s ability to make the importable goods grows faster than its ability to make the exportable goods. Anti-trade biased growth cuts trade, yet brings gains to the country itself. Effects of Anti-Trade Biased Growth

  7. If the increase in the endowments of factors of production is biased toward the exporting industry, the country’s ability to make the exportable goods grows faster than its ability to make the importable goods. Pro-trade biased growth (export expanding growth) brings gains to the country by increasing the volume of trade. Effects of Pro-Trade Biased Growth

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