Economics Homework Solutions
Problem
#38483

PRODUCTIVITY AND GROWTH


I read an article the other day that states:

"Productivity improvements should trigger a virtuous cycle that, under the right competitive conditions, will result in economic growth. Productivity creates surpluses. When surpluses are distributed among customers, employees and investors, an increase in demand is created across sectors. The increase in demand can only be met with increased output, which, if it occurs across multiple sectors, ensures increased employment and GDP growth overall."

To me this implies that if the saved money is distributed more  evenly (instead of just going to suppliers)  across different people in the economy then an increase in agg. demand will result.

But does this mean that if people started to suddenly buy a huge amount more from ONE particular company (say Mcdonalds) that because now money is not so evenly distributed  less growth will occur in the economy? Surely Mcdonalds will not borrow to invest so much more (to meet this increasing demand) that it will balance the amount other firms would have invested to meet increased demand?

Also i just thought productivity increases allowed the productive capacity to increase , thereby allowing interest rates to remain low , is this not the main advantage of productivity increases?




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