Homework Answers
3.
A.
Annual growth rate is given as:
= 7.17%
B.
Three reasons causing economic growth:
- Capital formation. Reason: Investment increases productivity in production process. Higher capital stock can help in extracting increasing returns to other factors of production.
- Human capital. Reason: Labor is the important input used under production process. Skilled labor increases productivity.
- Technological progress. Reason: Technological progress is the most important factor of economic growth which reduces cost of production and raises productivity.
C.
Government policies to amplify economic growth factors:
- Capital formation: Government can create downward pressure on interest rates, provide subsidy and tax exemption on investment and make time to time investment in the economy.
- Human capital: Government can organize education and skill development programs to enhance awareness and skill of labor set, should subsidize more education.
- Technological progress. Reason: Government can invest in research activities and introduce effective patent and copyrights and provide basic infrastructure for businesses.
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