June 17, 2024 

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FED PYRAMID: A simple little diagram that depicts the structure of the Federal Reserve System, which is in the shape of triangle (hence the not totally accurate term "pyramid"), with a large base that comes to a peak. The base of the pyramid contains thousands of commercial banks, which rests on a foundation of the millions of people who make up the nonbank public. The middle of the pyramid includes 37 Federal Reserve Banks, including 12 District Banks and 25 Branch Banks. Resting at the top of the pyramid is the Board of Governors, with the Chairman at the very, very top. The top also has two notable offshoots -- the Federal Open Market Committee and the Federal Advisory Council.

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Economic growth, the process of increasing the economy's ability to produce goods and services, can be achieved by increasing the quantity or quality of resources. The quantity option can include increases in the quantities of labor, capital, land, or entrepreneurship. The quality option primarily includes improvements in technology and human capital.
The two primary methods of achieving economic growth are increasing the quantity and quality of resources, what might be termed the Q and Q of economic growth. Each method expands the economy's production capabilities, which can result in a greater quantity of production that can then lessen the fundamental problem of scarcity. Economic growth is commonly illustrated as either an outward shift of the production possibilities curve or a rightward shift of the long-run aggregate supply curve.

Resource Quantity

The first, and perhaps most obvious, method of achieving economic growth is to increase the quantities of available resources. A direct implication of scarcity is that limited resources mean limited production of goods and services. If those resources are less limited, then production can be greater.

Labor: Labor--human effort--is involved in virtually every act of production, from mining manganese to baking bread. As such, if the economy has more workers, then it can produce more goods. The quantity of labor is typically expanded in three ways:

  • The first is natural population growth. Because labor is people, more births today, mean more workers in 20 years. So long as the birth rate exceeds the death rate, the size of the population increases. Once these people reach working age, then the labor force also expands.

  • Immigration from other nations is a second way. Workers who move from one country to another immediately add to the labor force of the destination nation. Industrialized countries, such as the United States, have always relied on the immigration of workers from other nations to expand the quantity of labor.

  • The third way is an increase in the labor force participation rate. That is, to have a larger fraction of the population engaged in working. Every society has hunters and gathers who work, and couch potatoes who do not. The pool of labor increases when a larger fraction of the population is willing and able to work.

Capital: The factories, machinery, equipment and other capital goods that workers use to assist their production efforts are critical to economic growth. Capital must be produced using resources that could have been used to make something else--such as a want-or-need satisfying hot fudge sundae. This act of producing capital, which enables greater future production but which means giving up goods that would have provided current satisfaction, is commonly termed investment.

Natural Resources: Natural resources provide the economy with the materials that are transformed into goods. If the economy has more materials, then it can produce goods. Because natural resources are natural, that is, they come with the planet, the key to increasing their quantity is not creating more so much as just finding them. This is the basic act of exploration, which has historically included "discovering" new lands like European explorers did in the 1600s or like U.S. settlers did when they expanded westward in the 1800s. However, in modern times, exploration usually takes the form of digging or drilling into the Earth's crust in search of mineral or fossil fuel deposits.

Resource Quality

The second method of achieving economic growth is to increase the qualities of available resources, that is, to improve the productivity of a given quantity of resources.

Education: The Quality of Labor: Education is the primary method of increasing the quality of labor resources. This also goes by the term human capital. Better educated workers are more productive workers. Education can be of the formal, sitting-in-a-classroom variety that awards diplomas and forces students to expand their conceptual understanding. Or it can be of the informal, on-the-job-training variety that comes from experience and learning-by-doing. Both methods--formal education and experience--are valuable methods of increasing human capital and the quality of labor. Some knowledge is best acquired through formal education and some is best obtained by just doing it.

Technology: The Quality of Production: Technology is the knowledge and information that society as a whole possesses about the production of goods and services. Improving technology makes it possible to produce more output with the same resources or to use fewer resources to produce the same output, that is, to improve technical efficiency. While technology concerns all aspects of production, it most often surfaces in the quality of capital. That is, the economy uses technological improvements to build better, technically more efficient, machinery and tools.


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ECONOMIC GROWTH, SOURCES, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2024. [Accessed: June 17, 2024].

Check Out These Related Terms...

     | economic growth, production possibilities | investment, production possibilities | full employment, production possibilities |

Or For A Little Background...

     | economic growth | scarcity | scarce resources | limited resources | production possibilities curve | labor | capital | natural resources | technology | technical efficiency | investment |

And For Further Study...

     | economic efficiency | efficiency | economic goals | seven economic rules | free lunch | three questions of allocation | four estates | government functions | political views | production possibilities | specialization | investment | business cycles | gross domestic product | labor force participation rate | structural unemployment | aggregate market | aggregate supply increase, long-run aggregate market | aggregate supply determinants | capital stock, aggregate supply determinant | mobility |

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