[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Review and Practice
SUMMARY
1. The United States experienced a marked slowdown
in the rate of productivity growth in the early 1970s,
compared with the preceding two decades. Since the
late 1990s there has been a remarkable increase in
productivity growth. Even seemingly small changes in
the rate of increase in productivity will have powerful
effects on the standard of living over a generation
or two.
2. There are four major sources of productivity growth:
increases in the accumulation of capital goods (investment);
qualitative improvements in the labor force;
greater efficiency in allocating resources; and technological
change. Since 1973 almost all of the increase in
productivity can be attributed to increases in capital,
improvements in human capital, and expenditures on
research and development. In recent years, the relative
role of human capital has increased and the role of
physical capital has decreased.
3. Increases in human capital—improved education—are
a major source of productivity increases. There are
large returns to investments in education.
4. The twentieth century was marked by shifts in the U.S.
economy from an agricultural base to an industrial
base and then to a service base.
5. Improvements in technology, partly as a result of
expenditures on research and development (R & D),
are a major source of increases in productivity. Government
supports R & D through both direct spending and
tax incentives, though direct support for R & D that is
not defense-related has actually declined during the
past quarter century.
6. There has long been concern that certain natural
resources (like oil) will run out someday, causing
economic growth to halt. However, most economists
would argue that the price of resources will increase
as they become more scarce, and this rise will encourage
both greater conservation and a search for
substitutes.
7. Sustainable development requires growth strategies
that use resources and the environment in ways that
do not jeopardize future potential growth.
KEY TERMS
income per capita
labor force participation rate
depreciation
capital deepening
human capital
property rights
total factor productivity analysis
total factor productivity (TFP)
sustainable development
REVIEW QUESTIONS
1. True or false: “Since growth-oriented policies might
have an effect of only a percent or two per year, they
are not worth worrying much about.” Explain.
2. What are the four possible sources of productivity
growth?
3. What is the link between changes in the capital stock
(investment) and the rate of growth of productivity in
the short run? What is the link between changes in the
capital stock and the level of productivity (output per
worker) in the long run? What is meant by capital
deepening?
4. What policies might the government use to increase
investment in R & D?
5. What is total factor productivity and how is it
measured?
6. Are there limits to economic growth? What was
Malthus’s view? Is growth limited by exhaustible
resources?
PROBLEMS
1. Explain how the following factors would increase or
decrease the average productivity of labor:
(a) Successful reforms of the educational system
(b) The entry of new workers into the economy
(c) Earlier retirement
(d) Increased investment
602 ∂ CHAPTER 27 GROWTH AND PRODUCTIVITY