Investment and Economic Growth
Syllabus: Evaluate the view that increased investment is essential to achieve economic growth.
Syllabus: Evaluate the view that improved productivity is essential to achieve economic
Productivity is defined as Average Product: It is the amount of output one unit (on average) of a given factor of production produces. It is calculated as:
Average Product of Labour is APL = Total Amount Produced
Total Units of Labour
Average Product of Capital is APk = Total Amount Produced
Total Units of Capital
Usually it is labour productivity that concerns economists and policy-makers - if labour productivity can be increased then economic growth will occur (as long as labour is being used effectively). This is to do with the Quality of factors of production but economic growth can occur through an increase in the Quantity of factors of production too so in that sense productivity increases are not essential but very desireable.
Note the inter-play between the two factors - to improve the productivity of labour you can give them better machinery and technology: to improve the productivity of capital you can increase education and training of labour:
Consequences of economic growthSyllabus: Discuss the possible consequences of economic growth, including the possible impacts on
- living standards (especially quality of life)
- the distribution of income
- the current account of the balance of payments, and
Pause for thought
Economic growth is often seen as an economic goal to which all countries and governments should aspire. . However, economic growth can be a double-edged sword in that it can have both distinct advantages, but create problems as well. You might want to work with fellow students to consider what these pros and cons might be. Follow the links below to compare your responses.
4. (a) Explain two factors which might cause economic growth. [10 marks]
(b) Evaluate the view that the benefits of economic growth will always outweigh the costs. [15 marks]