Q1. Ingredients of Long run Economic Growth
The long-term growth of any economy is determined by two major elements – the sum of workforce growth in the economy and the rate of productivity growth (Timiraos & Tangel, 2017). The sum of workforce growth refers to both the increase in the size of the workforce in an economy and the development in the skills and expertise of the existing workers. An increase in the size of a country’s workforce results in an increase in the country’s gross domestic product (GDP), which drives economic expansion. A larger workforce presents an economy with an opportunity to produce more. On the other hand, improvement in the skills of the workers in an economy results in increased productivity and performance, which in turn boost the country’s GDP. The rate of productivity growth is determined by factors such as growth in the skills and size of the workforce, and technology improvements. Increase in productivity results in greater output for the same level or quantity of input, and ultimately, greater GDP. The Congressional Budget Office’ approximation for the growth of the United States economy is 1.8 percent – a workforce annual growth rate of 0.5 percent annually for the next ten years and a productivity growth rate of 1.3 percent annually (Timiraos & Tangel, 2017).
Q2. Why Economists Believe that a 3% Economic Growth Rate is not Achievable
Even though the goal of Donald Trump’s administration is to achieve an annual long-term economic growth of 3 percent, two major challenges stand in the way: The United States workforce is not producing adequate new workers (the workforce is not growing at a high rate) and the productivity of the country’s workforce is growing at a very low rate. The rate of economic growth of a country cannot be higher than the totaled growth rates of the workforce and the output of the workforce. According to the economists (Timiraos & Tangel, 2017), the combination of these two determinants of economic growth is 1.8 percent, for the next ten years. This is because the rate of growth in the population of prime working people is low, as is the rate of growth of productivity due to decreased innovation and investment. In addition, the officials at the Federal Reserve also project a long-term economic growth rate of 1.8 percent. The rate of growth of the US workforce and the rate of growth of the hourly productivity of the workforce need to improve drastically to achieve the 3 percent economic growth goal set by the administration. Without an increase in these two rates of growth, the goal of 3 percent economic growth rate cannot be achieved.
Q3. Recommendations for the Improvement of Economic Growth Rate
In order to improve the rate of growth of the economy in the long run, the rate of growth of the workforce in the country and the rate of increase in productivity have to be improved. The rate of growth in the American workforce can only be increased by an increase in the birth rate and a decrease in the death rates. This would result in an increase in the growth of the prime working age population. This can be achieved through the provision of better healthcare to minimize infant mortality and lengthen life expectancy. The rate of productivity growth can be increased through increased innovation and investment. Organizations should invest in the training and development of the workforce to improve their skills and productivity (Berger & Fisher, 2013). They should also invest in automation and the integration of technology in production processes to increase productivity and to produce better quality products. The ultimate goal is to increase the country’s GDP, which can only be increased through increased production. Increasing investment and innovation will result in more output from the same input, which will increase the GDP and improvement in the rate of economic growth in the long run.