115 CFA
File: Economics - Reading 14 - 7. Economic Growth and Sustainability

7. Economic Growth and Sustainability

m. describe sources, measurement, and sustainability of economic growth;

n. describe the production function approach to analyzing the sources of economic growth;

o. distinguish between input growth and growth of total factor productivity as components of economic growth.

What is the definition of economic growth?
Economic growth is the sustained expansion of production possibilities measured as the increase in real GDP over a given period.

What is the formula to measure the quantity of real GDP supplied?
- Y = A * F(L, K)
- Y = real GDP
- A = state of technology (total factor productivity)
- L = quantity of Labor
- K = quantity of Capital

What is the law of diminishing returns? What does it say about economy growth?
As the quantity of one input increases with the quantities of all other inputs remaining the same, output increases but by ever smaller increments. As capital per hour of labor rises, output rises (the marginal product of capital is positive) but output rises less at high levels of capital than at low levels. This is the key explanation of why the economy reaches a steady state rather than growing endlessly.

What is "convergence" in regards to two economies?
Convergence is the process of one economy catching up with another economy.

What are the five important sources of economic growth?
1. Labor supply - the quantity of the work force
2. Human capital - the quality of the work force
3. Physical capital - prior savings and investment decisions
4. Technology
5. Natural resources

What is labor productivity?
Labor productivity is the quantity of real GDP produced by an hour of labor.

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