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Economics U$A: 21st Century Edition

Economic Growth (Microeconomics)

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By 1916 Henry Ford’s assembly line had lowered the price of the Model T to $360, making it affordable and increasing its production exponentially in two years. In 1972 a group of experts known as the Club of Rome issued a report called “The Limits to Growth,” predicting that raw materials could run out and world population growth and pollution could get out of hand. The Internet is a technological innovation that paved the way for other innovations such as smart phones. These stories highlight two important factors for economic growth: capital per worker (a.k.a. productivity) and technological innovation.

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Unit Overview


To show two of the major determinants of the economy’s growth in the 20th century, and to examine whether the continuation of growth is threatened by the depletion of natural resources.


  1. Approximately one third of the growth in output per person is due to the increasing quantity of capital per worker and economies of scale.
  2. Technological change may account for as much as half of the economy’s growth.
  3. Scarcity of natural resources may impede economic growth but such scarcities have been overcome in the past.
    • Prices will increase for resources that become scarce, encouraging conservation and substitution.
    • New technologies may reduce the economy’s dependence on the depleted resources.

Meet the Series Experts

Jay Forrester

Pioneer computer engineer and “systems” scientist, regarded as the founder of “system dynamics.” His engineering focused on studies of organizational policy, using computer simulations to analyze social systems and predict the implications of different models. At the Massachusetts Institute of Technology (MIT), he founded the Digital Computer Laboratory, where he invented the magnetic core random-access memory (RAM) used in digital computers. He also developed a system that tracked five fundamental quantities: population, pollution, food production, industrialization, and consumption of resources. In 1956, he became Professor Emeritus and Senior Lecturer at MIT’s Sloan School of Management. He received the National Medal of Technology and was inducted into the Operational Research Hall of Fame. Mr. Forrester received his undergraduate degree from the Engineering College at the University of Nebraska.

Henry C. Wallich

Member of President Dwight D. Eisenhower’s Council of Economic Advisers, 1959–1961, and a Governor of the Federal Reserve System, 1974–1986. Beginning in 1933, he worked at an exporting firm in Argentina, a bank in Chile, and a securities firm on Wall Street. He later became a Professor of Economics at Yale University, an economic columnist for Newsweek magazine, and a Senior Consultant for the U.S. Treasury Department. Dr. Wallich received his B.A. from New York University and M.A. and Ph.D. in Economics from Harvard University.

Rob Atkinson

Founder and President of the Information Technology and Innovation Foundation (ITIF), a policy think tank. He is the author of the State New Economy Index series and The Past and Future of America’s Economy: Long Waves of Innovation that Power Cycles of Growth. He has conducted ground-breaking research on technology and innovation, is a valued adviser to state and national policymakers, and is a popular speaker on innovation policy. Before founding ITIF, he was Vice President of the Progressive Policy Institute and Director of its Technology and New Economy Project, writing policy papers on broadband telecommunications, Internet telephony, universal service, e-commerce, e-government, privacy, and off-shoring. Dr. Atkinson received his Ph.D. in City and Regional Planning from the University of North Carolina.

What's your Economics IQ?

Take the Economics USA: Economic Growth quiz here.

Quiz addendum:
1. Answer explanation:
The natural limitations of finite resources. Malthus believed that other factors, such as war and disease, would also curb population; however, he believed the main factor would be the effect of limited resources on the standard of living.

3. Answer explanation: 
Increase the efficient use of resources. Ricardo believed in efficiency but did not really believe there was a way to raise the standard of living above subsistence levels because he subscribed to the theories of Malthus. Ricardo did not favor domination by any class.


  • capital investment
    Money invested in a business venture with an expectation of income, and recovered through earnings generated by the business over several years.
  • capital-output ratio
    The ratio of the total capital stock to annual national output.
  • economies of scale
    Efficiencies that result from carrying out a process (such as production or sales) on a large scale.
  • forgone consumption
    Saving, as opposed to spending; nonspending.
  • labor productivity
    The amount of output divided by the number of units of labor employed.
  • price incentives
    When the price of a product is reduced to make that product more attractive to consumers.
  • technological change
    New methods of producing existing products, new designs that make it possible to produce new products, and new techniques of organization, marketing, and management.

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Economics U$A: 21st Century Edition


Produced by the Educational Film Center. 2012.
  • Closed Captioning
  • ISBN: 1-57680-895-5