Chinese Economic Growth
1, Explain what is meant by Economic Growth and what this means for Chinese Productive Capacity.
Economic Growth can simply be defined as the growth in the productive potential of the economy over a given period of time. It is typically measured by growth in the real GDP.
Economies are constantly changing over time for a variety of reasons. Part of the change involves fluctuations in the productive capacity, the ability to produce goods and services. Increases in the productive capacity are known as Economic Growth.
One of the main components that economists can use to demonstrate and discuss economic growth is the Production Possibility Frontier. The PPF (Production Possibility Frontier) will exhibit the maximum or potential output of an economy, when the economy grows, the PPF will move outwards.
The diagram on the left shows a typical PPF curve, as you can see a shift outwards demonstrates economic growth. This type of diagram can be used effectively to exhibit the kind of economic growth that the Chinese economy has been seeing since 1978.
A more detailed explanation of the prominent causes for economic growth would attribute it to the following factors, land, labour, capital and enterprise. National output can be increased if there is an increase in the quantity or quality of the inputs to the production process. Output can also be increased if existing inputs are used more efficiently.
Land, one of the four main components in the factors of production is defined in economic terms as all natural resources, and not just lands itself. Countries can experience huge economic growth through the exploitation of natural resources located in the country. An example of a country experiencing sustained and accelerated economic growth as a result of unrelenting use of natural resources is Saudi Arabia who without the large oil reserves located within the country would almost certainly be a deprived country. Countries throughout history have cashed in on their resources. In the 1970’s the United Kingdom exploited their oil and gas reserves. It is generally agreed amongst economists that the exploitation of raw materials attributes to a small factor in economic growth; however it can be vital in developing countries growing. In China today signs of the exploitation of natural resources can clearly be seen as they help to fuel the growth of the economy.
Labour, the second of the factors of production is also vital in growing the economy. Increasing the number of workers in an economy should lead to a larger productive capacity; this can result from three main factors. The first is a change in the demography, if more young people join the workforce than the old who are leaving it, the size of the workforce will increase leading to a higher levels of productivity being seen from the economy. In most western, developed countries the age of the population is generally well distributed meaning that the workforce stays the same size and is at a stable level. The second factor which can increase the size of the labour force is an increase in participation rates. In all economies, the majority of men who wish to work are in the labour force; however in developed countries there are far more employment opportunities open to women who could be brought into the labour force if employment opportunities arise. Finally immigration is a relatively easy way of increasing the labour force. Employing migrant workers may increase output, but will not necessarily increase economic welfare. In employing migrant workers, the increased income is being shared by a larger number of people, meaning that economic welfare is not increased. Increasing the quality of labour input is likely to be far more important in the long run, as in doing this economic welfare will not suffer as it does with an increase in the workforce.
Labour is not homogenous in the sense that it is not all the same. Workers can be made...
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