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Management article
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Reference no. 97406
Authors: Paul Krugman
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1997

Abstract

Can the U.S. economy grow much faster than the two-point-something percent it has in recent years? Standard economic analysis suggests that it cannot. But many influential business leaders and journalists--and even a few economists--have embraced a radical economic theory that argues that the old speed limits to growth are obsolete. According to this so-called new paradigm, rapid technological change means that the economy can grow much faster than it used to; global competition means that a booming economy will not produce high inflation. Many people in the business community take the new doctrine very seriously, notes MIT economist Paul Krugman. Unfortunately, he says, it is riddled with gaping conceptual and empirical holes. Krugman lays out in clear terms the macroeconomic principles that explain how markets interact and why there are limits on growth. We would all like the U.S. economy to grow faster than it has, says Krugman, but all the evidence suggests that it cannot.

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Abstract

Can the U.S. economy grow much faster than the two-point-something percent it has in recent years? Standard economic analysis suggests that it cannot. But many influential business leaders and journalists--and even a few economists--have embraced a radical economic theory that argues that the old speed limits to growth are obsolete. According to this so-called new paradigm, rapid technological change means that the economy can grow much faster than it used to; global competition means that a booming economy will not produce high inflation. Many people in the business community take the new doctrine very seriously, notes MIT economist Paul Krugman. Unfortunately, he says, it is riddled with gaping conceptual and empirical holes. Krugman lays out in clear terms the macroeconomic principles that explain how markets interact and why there are limits on growth. We would all like the U.S. economy to grow faster than it has, says Krugman, but all the evidence suggests that it cannot.

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