FE - Productivity (Lesson)

Productivity

Introduction

An economy’s productive capacity is determined by the quantity/quality of its productive resources and technology. In the short run an economy’s total productive capacity is fixed, but in the long run, an economy can increase its capacity to produce goods and services by increasing the quantity and/or the quality of its productive resources or through technological progress. An economy’s productive capacity is determined by the quantity and quality of its resources.

As you go through this lesson, pay attention to the following concepts:

• What is the significance of productivity in economics?
• Why does economic prosperity vary substantially around the world?
• How can government enhance a nation’s productivity?
• What is the link between investment and long-run economic growth?

 

 

What Determines Productive Capacity?

An economy’s productive capacity is determined by the quantity and quality of its resources, including:

• Human resources: labor resources and human capital. Human capital refers to the education and skills possessed by labor resources. Education is an investment in human capital because it increases workers’ ability to produce.
• Natural resources: (or land) Naturally occurring goods such as soil and minerals that are used in the creation of products.
• Capital goods: goods (e.g., equipment and machinery) used to make other goods and services.
• Technology: the way that resources are combined to produce goods and services. Technological progress occurs when production becomes more efficient.

Economic growth is often measured by changes in real gross domestic product (GDP) or real GDP per capita. For example, the rate of economic growth can be measured by the average annual percentage change in real GDP per capita. Real GDP per capita is often used to measure living standards across time and between countries. Economic growth occurs because an economy experiences technological progress, increased investments in physical capital, and increased investments in physical capital, and increased investments in human capital. In the most fundamental sense, economic growth is concerned with increasing an economy’s total productive capacity at full employment.

Watch the video below to learn more.

 

 

Review

Review what you have learned by completing the activity below.

 

In Summary . . .

How does this graph relate to the business cycle?

 

We can see the expansionary and contractionary cycles of the business cycle; the rise and fall of the peaks and troughs. We see the recession of 2009 as the lowest trough and the peak of 2015 as a boom period.

 

What does the graph tell us about productivity and consumption in the U.S. since 1950?

 

 

Consumption and productivity have greatly increased since the 1950s. Consumption has increased 10x greater than it was in the 50s. To meet the demand for these goods, productivity and technology has had to increase.

 

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