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Chapter Review Chapter 27: Economic Growth

  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. Govern¬ ment 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 encour¬ age 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.
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