Components of the Aggregate Production Function. The relationship between productivity, technology and economic growth has been debated extensively in the endogenous growth, growth accounting, New Economy and policy literature. Figure 1 shows an example of the aggregate production function. ... As soon as the labour at hand is thoroughly utilised, the growth of the output cannot go faster than the rate of productivity growth before the firm starts hiring more workers. The rate of productivity growth is the primary determinant of an economy’s rate of long-term economic growth and higher wages. 23 Productivity and Economic Growth rate between cyclical peaks. Labor Productivity and Economic Growth. The relationship between economic growth and the unemployment rate. Article Shared by Tushar Seth. In answering the question, how is economic growth related to productivity, we should note that productivity is the principal origin of economic growth. It is well-known that productivity is a long-term determinant of return on capital and thereby of interest rates, which explains why there is a positive correlation between these two indicators (Marx et al. Growth lessons the burden of scarcity. ADVERTISEMENTS: Economic Growth: The term economic growth refers to the quantitative aspect of economic progress of a country. Specifically, we discuss and test the existence of a circular relationship between interest rates and productivity growth. The question is, how is economic growth related to productivity? The contributions of capital and labor inputs are the predominant sources of U.S. economic growth for the period as a whole and all eight subperiods. Economic growth is important because it represents an increase in living standards and can mean the difference between starvation and mere hunger for a developing country. The relationship between investment, economic growth and productivity and their subsequent effects on the economy seem obvious, but they are all dependent on the market conditions and the expected economic performance. Economic growth is characterized by an increase in an economy's ability to provide for the wants and needs of those who belong to a given society. Over decades and generations, seemingly small differences of a few percentage points in the annual rate of economic growth make an enormous difference in … According to Paul Baron, “Economic growth may be defined as an increase over time in per capita output of material goods.” Productivity and economic growth are closely linked because economic growth occurs when productivity increases to allow for such growth. In macroeconomics, the aggregate production function is the relationship between all the inputs in the economy and GDP. Economic growth is measured by increases of GDP or GDP per Capita. 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