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Economy in Long Run

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Essay title: Economy in Long Run

Economy in the long run

There are number of factors which determine the long run growth of the US economy. The basic factors are called the factors of production land, labor capital and entrepreneurship. Without these four factors it would be impossible for any economy to grow or sustain growth in the long run. When the economy grows the standard of living in a country usually rises. Consumers will have more money to consume goods thus creating more investment (capital). This is a circular flow. GDP (Gross Domestic Product) is used to measure the size of the economy from year to year. Real GDP in the USA has grown over time.

The number of people in the US labor force has increased over the past 20 years thus contributing to the overall economic growth of the USA. The graph below shows the labor force participation rate for the past 20 years. While the participation rate seems to be pretty steady between 60-65% if you take into the account the increase in population in the country the labor force has been increasing thus more and more workers were available each year.

Since the participation rate has remained the same and the population has increased substantially over the past 20 years this means there has to been a lot of investment to create new jobs. The graph below shows the amount of private investment over the past 20 years. As you can see it has increased year over year, which shows the economy was growing to accommodate the increase in population.

The investment in the USA economy has grown steadily over the past 20 years and even when it declined during early 90,s and 01-02 it was for a very short period.

I believe that investment and labor are going to be very important in contributing to the economic growth within the next 20 years with the addition of land. With the population increasing each year the numbers of resources are reduced. There is only a limited amount of land in the USA to support the growing population. Eventually the lack of land will lead to a decline in the economic growth of the country. With the baby boomers about to retire and the demand for labor increasing yearly the US will also be faced with a shortage of labor, which will lead to a decrease in growth. Many firms already outsource some of their jobs and we may see this increase over the next few years. One way to try and deal with this problem is immigration. By bringing in people from other

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