Transcript Y1 Real GDP - Personal homepages

Ch 7 Ecological Economics:
From an Empty World to a Full World
(through Growth)
ECN101
Prof. Grob
www.stmartin.edu
How much am I worth?
Expectations
• Understand how growth rates are
calculated
• Introduction to GDP
• Use the rule of 72
• Describe factors influencing growth
• How do we know we’re close to a “full
world”?
www.stmartin.edu
Rule of 72: The power of growth rates
How many years does it take to double
the rate of growth?
Years to double =
72
.
Growth rate
Economic growth
What is the GDP?
Gross Domestic Product is the
market value
of all final goods and services
produced
within a country
in a given year
What are the components of GDP?
• Personal consumption expenditures
• Gross private domestic investments
• Government purchases of goods
&services
• Net exports (exports minus imports)
• GDP=C + I + G + X-M
Rates of Economic Growth
• Rate of economic growth is the percent
change in economic activity from one
year to the next.
• Many people look at the GDP, but there
are other measures out there too.
• Are new products in fact a reflection of
our economic progress?
Calculating rates of economic growth
Rate of growth= Y2 Real GDP – Y1 Real GDP
Y1 Real GDP
Calculating the Real GDP
Real GDP= Nominal GDP X 100
GDP deflator
How fast can the economy grow?
• Mainstream view: 2.5% growth per year
• Some even say 5% may be sustainable
• Several nations have been able to
double their GDP in less than 28 years
• What are the implications for use of
natural resources?
• What would ecological economists say?
What factors affect economic growth?
• Availability of resources!
• Initial levels of input (land, labor,
capital)
• Allocation of resources
• Productivity
• Capital Investments (human & physical)
• Government policies
• Business policies
• Consumer sentiment
Economies have different starting points
• Natural resources
• Physical capital
• Human capital
• Economic efficiency
How economies grow
• Natural resources: shift inputs toward
production
• Human capital: provide incentives to
work
• Physical capital: provide investment
incentives
• Increase efficiency in production
Natural resources are the “first pillar of
economic growth”
• “Gifts” “usable in
production”
• Renewable vs.
nonrenewable
• Will technology provide
alternatives?
Physical capital
• Computers, machinery, tools help us to produce
goods and services
• Investment in physical capital can achieve
productivity increases
• It involves and opportunity cost: future
consumption for forgone consumption today
• Government is a source of physical capital in that
roads, bridges, airports and utilities comprise an
infrastructure for human activity including
production and that could increase efficiency
Human Capital
• Improve knowledge, experience and
skills of the workforce
• Teach people to adapt to changing
situations and to innovate
• Formal training
• On the job experience
Economic Efficiency
• Producing more with fewer inputs
• Invention and innovation
• Market structures can influence
efficiency as we will learn
• Opening markets abroad (freeing
resources abroad)
• Import methods or “reverse engineer”
What can government do to increase growth?
What should government do to increase growth?
How do we know if we’re close to a full world?