Production & Growth
A country’s standard of living depends
on its ability to produce goods and Production
services. the action of making or
manufacturing from components or
Within every country there are large
raw materials, or the process of being
changes in the standard of living over so manufactured.
time. Growth
an increase in the production of
goods and services over a specific
period.
HOW ECONOMIC GROWTH DIFFERS AROUND THE WORLD?
The countries around the world have its own graph of the calculated real GDP per
capita. By comparing and measuring the different countries real GDP per capita, it will be
to rank the lowest and highest growth in the economy. It will also very reliable especially
to countries that are experiencing economic growth deficiencies.
According to previous rankings, most developed countries that have real GDP per
capita have a difference of about ten (10)- twenty times higher that poorest countries. It
just states that economies in the developing countries have higher percentages of
economic growth which is beneficial to them.
In setting high standards in living, a country must have information about their
own productivity of goods and services to calculate and estimate the possible growth of
their economy.
The annual growth rate is changing as time and years passed by. Compounding
refers to the accumulation of a rate over a period of time. In estimating the future annual
rate of growth of a country, the “RULE OF 70” may use as a way.
70
rule of 70=
annual growthrate
WHY PRODUCTIVITY IS THE KEY DETERMINANT OF A
COUNTRY’S STANDARD OF LIVING?
To understand the large differences in living standards we must focus on the
production of goods and services.
Productivity refers to the quantity of goods and services that a worker can
produce for each hour of work.
The inputs used to produce goods and services are called the factors of
production.
FACTORS THAT DETERMINES THE COUNTRY`S
PRODUCTIVITY
Physical Capital which is the stock of equipment and structures that is
used to produce goods and services.
Human Capital which is education and experiences that worker
acquires.
Human Resource which is the used in the production of goods and
services that are provided by nature such as land.
Technological Knowledge is society's understanding on the best ways
to produce goods and services. Egypt makes a great candidate because
not only do they have a large number of educated people that are
unemployed, it also has natural resources with a huge number of low
cost laborers.
HOW A COUNTRY`S POLICIES INFLUENCE ITS PRODUCTIVITY
GROWTH?
Economic Growth and Public Policy
Public policies, laws, traditions, and institutions are critical to
transforming resources into useful output.
Governments can do many things to encourage or impede the
attainment of high living standards.
Government Policies
It is also called Economic Policy
It is a course of action that is intended to influence or control the
behaviour of the economy.
Encourage Saving and Investment
One way to raise future productivity is to invest more current resources in
the production of capital.
Governments can encourage capital accumulation:
o from domestic sources by imposing low taxes on interest and dividend
income.
o from foreign sources by making such capital secure and welcome
domestically.
Encourage Education and Training
Education is at least as important as investment in physical
capital.
Many times it is necessary for countries to provide basic
education so that the work force can acquire the specialized skills
leading to higher productivity
Establish Secure Property Rights and Political Stability
Property rights refer to the ability of people to exercise authority
over the resources they own.
An economy-wide respect for property rights is an important
prerequisite for the price system to work.
It is necessary for investors to feel that their investments are
secure and safe from political instability.
Promote Free Trade
To exploit comparative advantage and maximize production and
efficiency, it is important for countries to have the opportunity to
sell abroad and to be able to purchase from lower opportunity
cost producers.
Some countries engage in:
o Inward-orientated trade policies
o Outward-orientated trade policies
Control of Population Growth
Population is a key determinant of a country’s labour force.
Large populations tend to produce greater total GDP, however. . .
o Higher GDP doesn’t mean “higher well-being”, GDP per
person is more accurate.
o High population growth reduces GDP per person.
Research and Development
The advancement of technological knowledge has led to higher
standards of living. Technological advancement comes from
private firms and public agencies.
Government’s role is to encourage the research and development
of new technologies through research grants, tax breaks, and the
patent system.
