Saturday, March 10, 2012

A couple of nice graphs showing a link between Capital Stock and Economic Growth---Hey, STOP yawning and find out why this is important!!!

Here are a couple of graphs that help illustrate an important concept in AP Macroeconomics---the relationship between "Capital Stock"(or Stock of Capital) and economic growth.  Capital Stock, simply, is "the stuff you use to make other stuff"--Tools/Equipment that produce goods/services but also help workers be more productive.  The assumption is as more Captial Stock is employed, in terms of quanitity and quality, the higher future economic growth will be (Actual and/or Potential Economic Growth).  
Source: Conversable Economist
The graphs from this study compare the use of capital in IT (Information Technology) by multinational corporations in the US and Europe (the top graph--Capital Employed-Per Labor Hour Worked) and the potential effect on overall productivity (the bottom graph--Output Per Labor Hour Worked) between the two geographical areas.

I inserted the Red Line at the year 2000 just to get a before and after perspective.  I did not post these to prove anything on a large scale. There are/could be many other variables affecting productivy between the continents.  However, I believe some of the difference in productivity gains can be attributed to a  higher level of Capital Stock employment and the effective use of that Capital in producing goods and/or services.
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