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Appendix 3.1: Components of Economic Growth

Appendix 3.1: Components of Economic Growth

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Determinants of Economic
Growth
• Physical Capital Formation
– Increase in the amount of physical
capital per unit of labor

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Determinants of Economic
Growth
• Technological Advancement
– Increase factor productivity (labor,
land, capital)

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Production Possibilities Curve



Maximum quantities of two good and
services the economy can produce,
assuming:
– full employment / efficiency
– fixed resources
– constant technology

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PPC Schedule

Combination
Radios
Rice

A

B

C

E

100

90

50

0

0

40

80

100

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PPC Graph
Combinations A, B, C, and E are attainable
Combination D is unattainable given resources
and technology
Combination F is attainable, but inefficient

Radios
100
90
50

A
B
F

D
C

E
40 80 100
Rice
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Economic Growth

Combination D becomes available with
more resources and better technology

Radios
100
90
50

A

B

D
C

E
40 80 100
Rice
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Economic Improvement

Radios
100
90
50

Combinations G (or B or C) becomes
efficient with more employment
and/or improved efficiency

A
B

G
F

C

E
40 80 100
Rice
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Technological Advancement

Neutral: proportional increase in the supply of Rice and Radios

Radios

Rice
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Technological Advancement

Capital augmenting: greater increase in the supply of Radios

Radios

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Wesley. All rights reserved.

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Technological Advancement

Radios

Labor augmenting: greater increase in the supply of Rice

Rice
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Technological Advancement

Radios

Advancement only in agricultural production

Rice
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