Macroeconomics attempts to understand and solve various issues affecting an entire population or country. Some of the challenges that face people and governments include unemployment, GDP levels, economic growth, inflation, depression, etc. A nation’s ability to mitigate and improve the issues stated above depends on the long-run rate of financial growth. Over a long period, economists have found out that even the slightest difference in the long-run economic growth can have massive effects on the living standards and income of the average individual. This essay explores the impacts of long-run rate of financial growth on the development of a country and people.
Long-run economic development entails an increase in the real GDP as well as the national income and output. The financial progress is caused by a rise in aggregate supply and demand. For further illustration, the examples of economies in Japan and Australia can shed light on the effects of the long-run economic growth of individuals and the nation. The revelation of financial data from as early as the 18th century shows that Australia has a real GDP for each person that was five times that of Japan. Amongst the major economies around the globe, Japan was the poorest and Australia the wealthiest. Both the real GDPs of both regions did not stand still since then continuing to grow at certain levels (Abel, 206).
According to Abel (206), the real GDP in Australia rose annually by 1.3 percent to support the real income of the average individual in the nation. However, in Japan, the economic rate grew by 2.7 percent. By the 20th century, the country that was once the poorest amongst the major economies had surpassed the Pacific region of Australia with a margin of over 15 percent. There is not specific explanation regarding how economies develop because if it were there, the world would be rid of underdeveloped nations. Nevertheless, scholars in economics proceed to gain insight on the growth procedure by providing the primary forces that determine the development rate of the financial sector.
Over the decades, the national economies have encountered both expansion and recession that spells out optimism and gloom respectively. Depression has occurred several times in history ranging from the one in the 1930s to recent occurrences in the 1980s and 2008 (Eco 305 Lecture 23, 5). But beyond that countries still find ways to maneuver the problems and bounce back based on the illustration of Japan that has witnessed tremendous progress. An evaluation of the region will prove the importance of technological advancements as essential economic boosters as well as the variations in capital and productivity.
The output of the financial sector relies on the available quantities of inputs in the form of labor and capital. The correlations between inputs and outputs is governed by the formula Y=AF (K, N) where the total output is Y, capital K, labor N, and the productivity is A. If the productivity and inputs stay constant then there will be no economic progress. Hence, it is essential for the quantity of inputs and the levels of productivity to grow to facilitate financial outputs. The rich nations have had a large increase of outputs since the 19th-century enhancing people’s living standards. For instance, in Japan output per person is currently at factor 10.2, in France it is at 4.3, and the U.S. 3.1 (Eco 305 Lecture 23, 10).
The factor outputs of each region are derived from compounding the investment and interests rates with the amount of time. The growth of Japan arose due to the convergence of the output per individual that made the country that once lagged behind the United States to reduce the gap. However, the convergence concept is not perfect because Turkey was in a similar position as Japan in the early 19th-century but has only grown at half the rate of Japan’s economic development. Economists have generated explanations by evaluating the specific nations and the ideology of space and time across different millennia dating back to the Roman Empire and the Malthusian era (Eco 305 Lecture 23, 15).
The technological state of a nation is also fundamental in promoting financial progress. The phenomenon determines the production of outputs based on the provision of capital and labor. The Solow model makes it clear that capital and human resources by themselves cannot sustain the increase in output and economic growth since at some point the differences in the capital and labor stop affecting the financial development. That point is known as the diminishing law of returns. Hence, technology comes in to sustain continuous improvements in productivity by providing a steady increase in the output of an employee. Significant growth thus depends on technological advancements (Eco 305 Lecture 23, 26).
The dimension of developments in technology indicates that the aspect acts at the lubricant that promotes an increase in output for the given amount of labor and capital. It also leads to the manufacture of better services and products as well as the introduction of new goods (Eco 305 Lecture 25, 2). Technology would explain the substantial development in Japan since the nation is the helm of many digital advancements and robotics. The improvements together with the increase in the human resource and capital have propelled the region that was once the poorest amongst the main economies to become a fast-rising global leader that poses a threat to the United States which is currently holding the top position in real GDP.
Works Cited
Abel. Chapter 6. Long-Run Economic Growth, n.d. Web. http://www.aw-bc.com/info/abel_bernanke/06Abel.pdf
Eco 305 Lecture 23. Long Run. April 18, 2016.
Eco 305 Lecture 25. Technological Progress and Growth. April 15, 2016.
