Transcript The U.S. Economy: A Global View - John Zietlow

The U.S. Economy: A Global View
Chapter 2
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
The U.S. Economy
• Economic outcomes vary greatly across
nations
– WHAT goods and services does the United States
produce?
– HOW is that output produced?
– FOR WHOM is the output produced?
2-2
What America Produces
• The U.S. has 12 percent of the world’s arable
land and less than 5 percent of the world’s
population
• The U.S. produces more than 20 percent of the
world’s output
2-3
Gross Domestic Product
• Gross Domestic Product (GDP): The total
market value of all final goods and services
produced within a nation’s borders in a given
time period
2-4
Comparative Output
Source: From World Development Report 2009. www.worldbank.org.
The market value of output (GDP) is a basic measure of an
economy’s size.
2-5
Per Capita GDP
• Per Capita GDP: The dollar value of GDP
divided by total population; average GDP
– Output per person in an economy if all output were
divided up evenly across the population
• Economic growth: An increase in output (real
GDP); an expansion of production possibilities
2-6
GDP Per Capita Around the World
Source: From World Development Report 2009. www.worldbank.org.
Per capita GDP is a measure of output that reflects average
living standards.
2-7
Growth in Per Capita GDP
• To attain growth in GDP per capita, the
economy needs a higher rate of GDP growth
than population growth
– U.S. output has grown by roughly 3 percent per
year
– U.S. population grows by about 1 percent per year
2-8
U.S. Output and Population Growth
The growth of output
in the United States
has greatly exceeded
population growth.
2-9
GDP Growth vs Population Growth
Average Growth Rate (2000–2007) of
GDP Population Per Capita GDP
High-income countries
United States
Canada
Japan
France
2.7
2.7
1.7
1.7
0.9
1.0
0.1
0.7
1.8
1.7
1.6
1.0
Populations of rich
countries are growing
slowly, and gains in
per capita GDP are
easily achieved.
Low-income countries
China
India
Madagascar
Niger
Haiti
Ivory Coast
Zimbabwe
Zambia
10.2
7.8
3.3
3.9
0.2
0.2
- 4.4
- 5.7
0.6
1.4
2.8
3.5
1.6
1.7
0.8
1.9
9.6
6.4
0.5
0.4
- 1.4
- 1.5
- 5.2
- 7.6
In the poorest
countries, population
is still increasing
rapidly, making it
difficult to raise
living standards.
Source: From World Development Report, 2009. www.worldbank.org.
2-10
The Mix of Output
• The mix of output includes goods and services
– A century ago, about two-thirds of U.S. output
consisted of goods while one-third of output
consisted of services.
– Today, nearly 75 percent of U.S. output now
consists of services, not goods.
2-11
The Changing Mix of Output
Percent of employment
100
Services
80
60
40
Manufacturing,
mining and
construction
Agriculture
20
0
1800
1840
1880
1920
1960
1993
2-12
Development Patterns
• The transformation of the U.S. into a service
economy is a reflection of high incomes
• Citizens in poor countries don’t have enough
income to buy many services, so production is
weighted toward goods
2-13
How America Produces
• Production in every nation depends on its
available resources
• Differences in GDP across countries is
explained by HOW those resources are used
2-14
Factors of Production
• Factors of production: Resource inputs used
to produce goods and services
–
–
–
–
Land
Labor
Capital
Entrepreneurship
2-15
Human Capital
• Human capital: The knowledge and skills
possessed by the workforce
– High school graduation rates in the U.S. are over
85 percent
– In many less developed countries, only 1 out of 2
youths attend high school
2-16
The Education Gap Between Rich and
Poor Nations
Source: From World Development Indicators, 2009. www.worldbank.org.
The high productivity of the American economy is explained in part by the
quality of its labor resources. Workers in poorer, less developed countries get
much less education and training.
2-17
Capital Stock
• America has accumulated a massive stock of
capital, including machinery, factories, and
buildings
• Capital-intensive: Production processes that
use a high ratio of capital to labor inputs
2-18
High Productivity
• Productivity: Output per unit of input, such as
output per labor hour
• The high productivity of the U.S economy
results from using highly educated workers in
capital-intensive production processes
2-19
Factor Mobility
• Our continuing ability to produce also depends
on our agility in reallocating resources
• Land, labor, capital, and entrepreneurship
move from one industry to another in response
to changing demands and technology
2-20
Technological Advance
• Technological Advance: Finding new and
better ways to produce goods and services
• Whenever technology advances, an economy
can produce more output with existing
resources
2-21
Outsourcing and Trade
• Advancing technology facilitates global
resource use
• Outsourcing allows U.S. workers to pursue
their comparative advantage in high-skill,
capital-intensive jobs
2-22
Economic Freedom and Growth
• As nations become freer, relying more on
markets and less on government, GDP growth
is enhanced
• Government plays a critical role in establishing
a framework in which private business can
operate
2-23
Role of Government
•
•
•
•
Providing a Legal Framework
Protecting the Environment
Protecting Consumers
Protecting Labor
2-24
Providing a Legal Framework
• One of the most basic functions of government
is to establish and enforce the rules of the
game
• By establishing ownership rights, contract
rights, and other rules, the government lays the
foundation for market transactions
2-25
Protecting the Environment
• Externalities: Costs (or benefits) of a market
activity borne by a third party
• To reduce the external costs of production, the
government limits air, water, and noise
pollution, and regulates environmental use
2-26
Protecting Consumers
• The government prevents individual firms
from becoming too powerful
– Monopoly: A firm that produces the entire market
supply of a particular good or service
• The government also regulates product safety
2-27
Protecting Labor
• The government regulates how labor resources
are use in the production process
– In the United States, child labor laws prevent
minor children from being exploited
• Government regulations also set standards for
workplace safety, minimum wages, fringe
benefits, and overtime provisions
2-28
Striking a Balance
• Government interventions are designed to
change the way resources are used
• Government failure might replace market
failure, leaving us no better off and possibly
worse off
2-29
For Whom America Produces
• How many goods and services one gets largely
depends on how much income one has to
spend
2-30
U.S. Income Distribution
• Income quintile: One-fifth of the population,
rank-ordered by income
• The top 20 percent (quintile) of U.S.
households get half of all U.S. income
• The poorest 20 percent (quintile) get less than
4 percent of all income
2-31
U.S. Distribution of Income
Income
Quintile
2007 Income
Average
Income
Share of Total
Income (%)
Highest fifth
above $100,000
$168,000
49.7
Second fifth
$62,000 – 100,000
$ 79,000
23.4
Third fifth
$39,000 – 62,000
$ 50,000
14.8
Fourth fifth
$20,000 – 39,000
$ 29,000
8.7
Lowest fifth
$0 – 20,000
$ 12,000
3.4
Source: U.S. Department of Commerce, Bureau of the Census
2-32
Global Inequality
• Income disparities are greater in many other
countries
• Poor people in the United States receive more
goods and services than the average household
in most low-income countries
2-33
Income Share of the Rich
Source: From World Development Indicators, 2009. www.worldbank.org.
2-34
Ending Global Poverty
• Over 3 billion people still live in poverty
• The World Bank has ambitious goals for 2015
–
–
–
–
Reduce poverty and hunger by one-half
Achieve universal primary education
Reduce child and maternal mortality by two-thirds
Reduce by half the number of people without
access to potable water
2-35
Ending Global Poverty
• People in rich countries also aspire to higher
living standards
• The challenge is to find the right balance
between market and government forces
2-36
The U.S. Economy: A Global View
End of Chapter 2
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.