Economics 101: The Impact of GDP and Economic Growth

This report provides an overview of the factors influencing GDP and economic growth. It begins by defining labor productivity and explaining its importance in economic expansion. The report then discusses the impact of technological advancements on worker productivity, followed by an analysis of the role of physical capital, human capital, and economies of scale in affecting labor productivity. The document highlights how increased capital stock and technological advancements contribute to higher productivity. Additionally, the report emphasizes the importance of human capital, such as education and work experience, and how economies of scale can enhance productivity in larger industries. The report concludes by summarizing key concepts and the significance of these factors in fostering sustained economic growth.

Running head: GDP AND ECONOMIC GROWTH
GDP and Economic Growth
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One source of sustained economic growth in the long run is high productivity of labors.
The productivity of labor essentially measures how efficiently a nation is utilizing its resources.
Labor productivity is defined as value of output that each of the employed worker is producing
with per unit of input assigned to the workers. Higher worker productivity implies a better
utilization of resources per workers and hence, a more efficient output. Given scarcity of
resources that every economy faces a more efficient resource utilization results in a larger output
which helps to sustain a higher output and hence a higher growth for the longer term (Heijdra,
2017). Having more productive workers means an economy can produce more with every unit of
time. This in turn helps to free up resources that can be used in other areas adding to aggregate
output and higher growth.
The technological advancement impacts labor productivity in positive way.
Technological advancement is the combination of knowledge advancement, invention and
innovation. Technological advancement by introducing new and efficient method of production
increases productivity of workers. Introduction of new equipment following technological
advancement allows workers to work in a more efficient way leading to an increase labor
productivity. When a particular sector experiences a technological change marginal productivity
of workers in the particular sector increases contributing to a higher output of the sectors
(Battisti, Del Gatto & Parmeter, 2018). Labor augmenting technology such as autopilot
technology for planes or innovation of different statistical software used for data analysis and
such others significantly increases productivity of workers engaged in the sector.
The first factor affecting labor productivity is the stock of physical capital. Physical
capital stock include different equipment, tools, machines and other facilities available to
workers to product a particular good. Large the stock of capital higher is the amount of capital

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assigned to per unit of workers. This leads to a higher productivity of workers. The second
determinant of labor productivity is technology (Guilmi, Gallegati & Landini, 2017). Better the
technology, more productivity the workers are and vice-versa. In addition to physical capital,
another determinant of productivity of workers is human capital. Human capital refers to the
accumulated knowledge gained from education and work experience, expertise and skills that
average labor in the economy possesses. Generally a higher education level implies higher stock
of accumulated human capital resulting in a higher productivity of labors. Economies of scale is
another factor that affects labor productivity (Uribe & Schmitt-Grohe, 2017). Economies of scale
refers to cost effectiveness enjoyed by an industry because of its size. Workers working in a
larger industry are more productive compared to workers in a smaller size industry because of
the advantages used by workers due to the larger size.

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References
Battisti, M., Del Gatto, M., & Parmeter, C. F. (2018). Labor productivity growth: disentangling
technology and capital accumulation. Journal of Economic Growth, 23(1), 111-143.
Guilmi, C. D., Gallegati, M., & Landini, S. (2017). Interactive Macroeconomics. Cambridge
Books.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Uribe, M., & Schmitt-Grohé, S. (2017). Open economy macroeconomics. Princeton University
Press.