Chapter 12

Chapter 12 is titled “production and growth” and begins by discussing economic growth around the world. It goes on to introduce productivity, which is the quantity of goods and services produced from each unit of labor input, and that it is determined by physical capital, human capital, natural resources, and technological knowledge. It continues to discuss economic growth and public policy by focusing on saving and investment, diminishing returns and the catch-up effect, investment from abroad, health and nutrition, property rights and political stability, free trade, research and development, and population growth.

Human productivity is affected by the four factors I have listed above. Physical capital is the stock of equipment and structures used to produce goods and services, and the more that is available and the better quality they are the more productive people can be. Human capital is the knowledge and skills workers have and by being more educated, trained and experienced the better they will be at understanding what they should do and doing it efficiently. Natural resources are the inputs into the production of good and services that without they would not be able to produce any outputs. Finally, technological knowledge is society’s understanding of the best ways to produce goods and services, which is always advancing, and the more advanced this is the more productive people will be able to be.

Public Policy definitely affects the availability of resources people need to be productive in all the ways listed above that monitor growth. The economy and the world is always advancing and if our country is not growing with it, due to a restriction from public policy or not having the best available resources and information, they will not be as productive and will not be as competitive. An example of a public policy that could either inhibit or promote long-run productivity growth is research and development. If the government does not encourage this then there is no way for the country and different industries to be able to have any improvement in the factors of production, especially technology. Without these changes they could fall behind in global production and could not be as efficient as they should be by not making changes or looking into better way to increase output.