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Difficulty: EasyDeterminants and Factors Affecting Economic Growth

Which of the following factors is a direct determinant of economic growth because it shifts a nation's production possibility curve outward?

  1. Continuous technological innovation that enhances labor productivityAnswer
  2. B
    Reallocation of existing unemployed resources from agriculture to manufacturing
  3. C
    An increase in nominal national income resulting purely from price inflation
  4. D
    An expansion of redistributive welfare transfers to low-income households

Answer

Continuous technological innovation that enhances labor productivity is a direct factor driving economic growth by expanding real productive capacity.
Continuous technological innovation increases overall factor productivity and efficiency, enabling an economy to produce more output from given inputs and shifting the production possibility curve outward.

Step-by-Step Solution

1
Define economic growth in macroeconomic terms.
Economic growth is the long-term increase in a nation's real output and total productive capacity.
True economic growth requires expanding the physical or technological ability to produce more goods and services.
2
Identify factors that cause an outward shift in the Production Possibility Curve (PPC).
Technological progress improves efficiency per unit of input, expanding the production frontier.
Only improvements in resource quantity or quality (such as technology and capital accumulation) shift the PPC outward.

Key Concept

Determinants of Economic Growth
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Determinants and Factors Affecting Economic Growth