Question

Why is economic growth key for countries who want to escape poverty? Your Answer: A higher rate of economic growth is a result of increasing productivity: meaning more goods are produced per person which increases incomes; escaping poverty faster. How do institutions increase total factor productivity (TFP) and create incentives for economic growth? Your Answer: Enter answer 4 The "institutional theory" suggests that by establishing property rights, free and open markets, and the rule of law, a country will create the incentives necessary for markets to develop and the economy to grow without much MacBook Pro > c a s arch or type URL { 7 8 9 0 TE IR TT

Answer 1

Qn. 3. How do institutions increase TFP and create incentives for economic growth?

Ans:

TFP represents the increase in total production which is in excess of the increase that results from increase in inputs. It results from intangible factors such as technological change, education, research and development, synergies, etc. It is more useful to look at productivity increase over a period instead of the absolute value of total factor productivity.

When incentives are used to increase productivity in the workplace, employees often become competitive among each other. This means the employees will aim to achieve their organizational goals better than the next person does. When looking at the bigger picture, the organization benefits in the end. For example, when a few of the employees receive incentives, the rest of the workforce may improve in their efforts in order to be recognized in the same way The level of improvement in effort will rely mainly on how compelling the incentives are. The greater the incentive, the harder the employees will work.