" of particularly sluggish productivity growth. second, computer industry experts, including those in the semiconductor industry, do not indicate that the industry has exhausted its potential to produce faster and cheaper computers. similarly, business leaders suggest that they are still taking advantage of the advances in computing power at lower costs to find new and productive uses of newer technologies. the macroeconomic implications of faster productivity growth theory teaches us that the step - up in the growth rate of technological change certainly has important implications for economic activity and inflation. the main reason policymakers and economists are interested in the growth rate of productivity is that it helps us to understand the economy ’ s potential to supply goods and services. the effects on the economy ’ s ability to produce goods and services are clear, but theory predicts that a new higher level of productivity growth would also affect the demand for goods and services. the most immediate effects would be on capital investment, as we have seen. a more rapid pace of technological change raises the real rate of return on new investments - - perhaps significantly. put another way, a more rapid pace of technological change makes investments in capital goods embodying the new technology more profitable. when businesses recognize the new technological possibilities, capital spending accelerates to take advantage of the new profit opportunities. the employment and income generated by business spending on capital goods boosts consumer spending and sets off another round of investment spending. typically referred to by economists as " multiplier - accelerator " effects, such processes would continue as long as the real rate of return on a new capital project exceeded the real cost for capital for that project. through this process, an innovation on the supply side of the economy generates a comparable increase in aggregate demand. it is important to emphasize that higher productivity growth translates into higher real income growth for employees. this added income is seen most clearly in the higher wages paid to that growing number of workers whose cash compensation is tied to company performance. in addition, for those workers who have been granted stock options, higher profits today and the potential for further increases tomorrow translates into higher stock prices for their company and ultimately an increase in their overall compensation. but real incomes should increase even for workers whose compensation is not directly linked to company performance, as profitable business opportunities bolster the demand for scarce labor. theory also teaches that the increase in the rate of return on capital - - even if generated by a rise in the growth rate of technical change - - ultimately requires an increase in real market interest rates. market interest rates

period. international accounting the fsap also contemplates mandating adherence to international accounting standards. currently, banking organizations in the european union may prepare their annual financial statements in accordance with the accounting standards of the international accounting standards board ( iasb ), u. s. generally accepted accounting principles ( u. s. gaap ), and / or national standards. the use of u. s. gaap is usually limited to those banking organizations or other companies whose securities are publicly traded on u. s. stock exchanges and are registered with the securities and exchange commission. in many cases, these companies will also provide separate financial statements based on their national accounting standards and disclosure rules. the european union will require all eu companies listed on eu exchanges that are currently following national standards to follow iasb standards by 2005 and will require those eu companies that currently follow u. s. gaap to adopt iasb standards by 2007. the eu is also working to adopt international auditing standards for external audits of eu companies, including banks. the iasb is now independent of the international accounting profession and independently funded. it has adopted many of the structural elements of the fasb in the united states, which are intended to promote an independent, objective standards - setting environment. many senior american accounting experts serve on the iasb and its staff. iasb gaap has many similarities with u. s. gaap and the iasb issued extensive enhancements to its standards last year and this year, with additional improvements also issued as a proposal this year. for example, in recent months the iasb issued major revisions to its standards for financial instruments, which are similar to u. s. gaap and cover many areas of banking activities. one aspect of these revisions by the iasb significantly improved the guidance on loan loss allowances in ways that could lead to better bank reserving practices around the world. the federal reserve has long supported sound accounting policies and meaningful public disclosure by banking and financial organizations with the objective of improving market discipline and fostering stable financial markets. the concept of market discipline is assuming greater importance among international banking supervisors as well. basel ii seeks to strengthen the market ’ s ability to aid bank supervisors in evaluating banking organizations ’ risks and assessing capital adequacy. it consists of three pillars, or tools : a minimum risk - based capital requirement ( pillar i ), risk - based supervision ( pillar ii ), and disclosure of risks and capital adequacy to enhance market discipline