Economic Growth: Problems 3

Problem : Does increased productivity create unemployment?

Increased productivity does not create unemployment because it opens new markets and introduces new products that make up for any decrease in the labor required for the production of the old products.

Problem :

What are the effects of lagging productivity?

In general, a country that lags in productivity will have both lower wages and lower living standards than a country with higher productivity.

Problem :

Why do lags in productivity create both lower wages and lower living standards?

If we assume that all economies trade on the open market, than a country with lagging productivity must nonetheless price its goods at the same level as more productive countries if it hopes to sell on the international market. In this case, the only way for the lagging country to produce the good at a low price is to pay labor a low wage. If labor receives a low wage, workers are unable to provide or enjoy a high standard of living.

Problem :

What does a high standard of living entail?

While this judgement is relatively subjective, there are a number of factors that seems to be common to most economists' ideals. These include physical possessions, nutrition, health care, and life expectancy.

Problem :

What is GDP per capita and what does it measure?

The GDP per capita is calculated by dividing the nominal GDP in a common currency, say US dollars, by the total number of people in the country. This gives the average income to which each member of the population potentially has access. In other words, the more money each individual is able to access, the higher the potential standard of living.

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