Chapter 24, Problem 1QFR

To determine

To explain:

The factors influencing economic growth.

Explanation of Solution

One of the most significant factors for a good economy is economic growth. The public can use the additional government spending tax revenue which occurs when there is higher economic growth. Economic growth gives firms more profit, which results in the rising of stock prices. This gives businesses the opportunity to invest more and hire more workers. This ends in the creation of more jobs, resulting in the rise in incomes. There is more money for customers to buy extra goods and services. It leads to the growth in the economy that is why positive economic growth is what all countries want. Economic growth is determinable by an outward shift of the Production Possibility Curve (PPC).

The three important factors for economic growth are:

1. Natural resources:

   Discovering more non renewable resources like minerals or oil can lift growth in economy as these increases the Production Possibility Curve of a country. Logically speaking, increasing the number of natural resources in a country is not possible. The supply and demand of these resources must be balanced in order to prevent draining them. Better land management can enhance land value and make a contribution to economic growth.

2. Physical capital or infrastructure:

   The costs of economic activities will be lower if there is additional investment in physical capital like factories, roads and machinery. Better and improved machinery is more efficient than manual labor. High productivity will increase output.

3. Population or labor:

   Increase in population leads to the rise of worker or employee availability, which implies greater work force. One drawback of huge population is that it might result in more unemployment.

Economics Concept Introduction

Economic growth:

The rise in the output of economic products and services as opposed to one period is called economic growth. This can be evaluated in nominal or real terms (adjusted for inflation). Economic growth happens when individuals take resources and reorganize them in ways which are more useful.