Macroeconomics Theories and Policies
Quiz 21 :
Long-Run Economic Growth
According to Edward Denison,the main sources of growth were growth in the quantity of the labor input and four other factors that cause labor productivity to grow (i.e.,education per worker,capital formation,technological progress,and economies of scale).Labor productivity,or technology,is the most important source of growth.
The transition period is the time in which the economy is moving toward the steady state.The steady state is the long-run equilibrium of the economy where output per worker is constant.During the transition period,capital deepening and diminishing marginal returns in addition to increases in technology drive growth.In the steady state,only technology drives growth.
Constant returns to scale means that if all inputs rise in some proportion,say 50 percent,then output will increase by the same proportion,50 percent.Diminishing marginal returns means that holding one input constant,the change in output from increasing all other inputs falls as the quantity of those inputs increase.Yes,production functions can exhibit both of these properties at the same time.