Based on the Diagram the Following Information Can Be Derived Regarding the Growth of Us over the Long Term

1. Based on the above information, what accounts for the growth in the US over the long-term?

Based on the diagram the following information can be derived regarding the growth of US over the long term

i) The major portion of US's growth is because of capital deepening.IT capital deepening has constantly grown for the entire period, contributing a lot to growth. Although other capital deepening provides a significant contribution in all three periods, there is a decrease in the same in the period 1973-1995.

ii) The growth in IT TFP has been consistent through the period and is a major contributor to the growth of USA. The non-IT TFP shows variation and is on a growth path in the period 1973-1995.

iii) Although the number of hours worked by labor force has decreased over all three periods, the labor productivity has increased for the period 1995-2003, which is again a major contributor to the growth.

iv) The fraction of GDP which is contributed by the quality labor has come down. It has been decreasing in the period for which the graph has been provided.

2. What caused growth to slow down in the 70's to early 90's.

The following factors affected the growth slowdown in USA in the 70's to early 90's:

i) From the diagram it can be observed that the number of hours worked had reduced a bit and at the same time the total labor productivity has gone down in this period which could be one of the reason for the slowdown.

ii) The oil crisis: When USA supported Israel in 1973, in the war against other Arabic countries such as Tunisia, Syria and Egypt, these countries stopped export of oil to the USA. This created shortage of oil in USA and the oil prices hit record high level.

iii) Inflation: USA was hit by inflation and any effort taken by government to curve the same didn't generate any result. With inflation, country also faced stagnation in business activities.

iv) Recession: The country got into recession multiple times during the whole period because of which unemployment rate reached high levels. The exports were low, the interest rates peaked and many businesses went bankrupt.

v) Lower Investment: During this period the investment has reached low levels because of high interest rates and recession.

vi) Budget deficit: Because of tax cuts and higher government spending on defense, US faced budget deficits. US government started borrowing giving higher boost to interest rates.

vii) Trade deficit: Because of tough competition from other countries such as Japan export fell which gave rise to high trade deficits.

3. Do you think there is a relationship between economic growth and the performance of the stock market?

Economic