Question

1. Use productivity to explain why some economists think a “new economy” has been established in the United States.

Answer 1

The most underlying and crucial element of standard of living is the level of productivity. When productivity increases, then that means the people are getting what they want in a faster way and what they want in the same amount in time. Supply rises forward in accordance with productivity. It helps in taking out people from below poverty line and allows them to focus on beyond their survival. Physical productivity is defined as the quantity of output produced by one unit of input within one unit of time.

In views of J.P.Morgan Chase, during the second world war, America has enjoyed the fastest growth in productivity over the past 5 years. Over the period since 1995, labor productivity growth set at almost 3% and twice of the set rate over the previous two decades.

In the late 1990's when the productivity has been picked up firstly, the economists debated that very strongly that how much of the increase in productivity is constructional and how much of it was recurring. Some economists might argued that it was altered beyond normal proportions by the unsustainable hike in output and investment.

Mr. Robert Gordon, an economist at America's North western university, who in a paper published in 1999, he made an estimation that the all rise in labor productivity will be focused towards the production of computers with expecting nil gain in the rest of economy. He also mentioned that the effects in economy in the computers and internet where not exactly the same as those in the electricity and motor car in the early 20th century.

According to the statistics report;

• in the first half of 1990's, productivity increases at 1.5% annually.
• Increases at 3% from 2.8% from 1995 to 1999.
• Later increases beyond 3 % and tends to 5% in later years.

This kind of faster productivity growth translates directly into faster GDP growth. It holds down the inflation rate and it allows the federal reserve to take an easier approach to monetary policy. In other words, faster economic growth and low unemployment contributes to increase in tax revenue and there by improved budget situation and improved situation in national savings.