Answer to Question #255943 in Economics for Andy

Question

list and discuss the two main factors of economic growth in terms of the production possibility frontier

Answer 1

Economic growth is desirable, it enables society to consume more real material goods, increases the volume of public goods provided, thus increasing the standard of living of the population.

The history of national economies knows two main types of economic growth: extensive and intensive. Extensive economic growth is achieved through the use of more factors of production (labor, land, capital, entrepreneurial ability). Here, an increase in production is achieved through a quantitative increase in the number and qualifications of workers, through an increase in the capacity of the enterprise, that is, an increase in the number of installed equipment. Intensive economic growth is associated with an increase in returns per unit of used production resources and the use of more efficient factors of production. Here, an increase in the volume of production is ensured through the use of more advanced technology, scientific achievements, and advanced training of workers. In practice, the indicated growth rates do not occur in their pure form. It is generally accepted that predominantly intensive growth takes place if more than 50% of the increase in production is achieved due to intensive factors. If more than 50% of the increase is provided due to the involvement of new resources in production, then they speak of predominantly extensive growth.

The most important condition for economic growth is the factors of economic growth, their interaction. The factors of economic growth are divided into three groups:

- supply factors (quantity and quality of labor resources, quantity, and quality of natural resources, volume of investment resources or capital goods, level of technology and organization of production);

- demand factors (price level, consumer spending, investment spending, government spending, net exports);

- distribution factors (rationality and completeness of the involvement of resources in the production process, the efficiency of using the resources involved in the economic turnover).