Question

Relate each of the following to the 1995–2010 increase in the trend rate of productivity growth:

a. information technology

b. increasing returns

c. network effects

d. global competition

Short answer

1. Information technology: The development of personal computers, the internet, wireless technology, fiber optic cable has increased the average productivity of workers from 1995 to 2010. The quality of human resources increased, which increased productivity growth.
2. Increasing returns: Because of network effects and more specialized inputs (microchips), the rate of returns increased from 1995 to 2010, which promoted economic growth in this period.
3. Network effects: The invention of the internet created a huge network effect for many of the products. It increased the quality of output in the economy. An increase in the quality of output promotes economic growth.
4. Global competition: Many economies opened to the world between the years 1995 and 2010. It increased the global competition between firms, and the firms increased their efficiency factor.

Step-by-step solution

Step 1. Reason behind (a)

Information technology: Information technology has enhanced the productivity of workers through personal computers and the internet. It enabled many entrepreneurs to set up businesses from home and connect with their customers virtually.It increased workers' productivity levels from many sectors such as commerce, entertainment, travel & tourism, fashion, and many more.The output per hour of the economy increased between the periods of 1995-2010.

Thus, one can conclude that information technology increased workers' productivity level, which promoted economic growth.

Step 2. Reason behind (b)

Increasing returns:The invention of microchips decreased per unit cost in the manufacturing and service sectors.The development of the internet benefitted many entrepreneurs in lowering per-unit costs through network effects. Because of the development of specialized inputs like microchips and network effects, the entrepreneurs enjoyed increasing returns between the years 1995-2010.

The increasing returns from 1995-2010 promoted economic growth.

Step 3. Reason behind (c)

Network effects:Network effect refers to the phenomena under which the value of output for users increases with more users.Many entrepreneurs enjoyed the network effect in business after the invention of social media and e-commerce platforms between 1995-2010 because of the internet. It increased the quality of output in the economy.

An increase in the quality of output promoted economic growth for this period.

Step 4. Reason behind (d)

Global competition: In the years between 1995 and 2010, many countries opened countries for the global.Many countries that followed restricted market policies lifted their restrictions to gain the benefits of the global market.The competition between firms in the global market increased. To compete and survive in the global market, firms increased their efficiency level, which increased the efficiency factor of the economy.

An increase in the efficiency factor of the economy promotes economic growth. In this way, global competition paved economic growth from 1995 to 2010.