Business Investment Doesn't Promise Much Growth

How fast can the economy realistically grow, not just in the near term but in coming years? Potential or "trend" GDP growth has two basic ingredients: growth of the labor force and productivity gains. The more the labor force is growing and the higher the productivity gains, the faster the economy can grow without straining resources and sparking inflation. Right now, slack in both people and equipment is large enough that inflation is unlikely to become a problem in the near term.

Our interest, though, is in where economic growth is likely to converge over time, so let's explore the economy's longer-term potential. Growth of the labor force can be influenced by exogenous forces such as demographics. It also can be determined by how many people believe more jobs are available for them, beliefs that cause them to seek or not seek a job. What interests me, though, are productivity gains. When productivity is high, corporate profits tend to increase, and companies may share some of those income gains with their workers. That can increase economic growth....526 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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