Transcript ECON ch 10.3

Chapter 10
Economic Performance
10.3 Why is economic
growth important?
Why is economic
growth important?
• As the number of wins & loses a sports
team has, the final outcome of more wins
than loses is the most important factor, so
is the final outcome—more ups than
downs—for an economy
• If there are more ups than downs, an
economy will experience growth
Why is economic
growth important?
• As a nation’s economy grows, so does its
– Output of final goods & services produced
within a nation’s borders within a specific
period of time—an increase in a nation’s real
GDP
• To account for population increase,
economists measure economic growth in
terms of per capita increase in real GDP
Why is economic
growth important?
• Real GDP per capita is an increase in
the real dollar value of all final goods &
services that are produced per person for a
specified period of time
• Economic growth is important to maintain:
– High-standard of living
– Competitive market with other nations
– Provision of resources to deal with domestic
problems
Why is economic
growth important?
• Increased standard of living
– Without economic growth, a nation’s standard
of living declines
– The standard of living increases when
production per person increases faster than
the total population
• People have more money to spend
• There is an increased supply of goods & services
to choose from
• As well as the means to have more leisure time
Why is economic
growth important?
• Higher standard of living
– Benefits to society
• More time to devote to family, travel & entertainment
• More time helping community & in volunteer work
• Lessens domestic problems such as poverty, crime, & lack of
health care
– In increase in a nation\s real GDP per capital is not a
true measure of the nation’s standard of living as a
whole
• If most of the material possessions are in the hands of a few,
only a few, not many people are experiencing a high standard
of living
Why is economic
growth important?
• Competing in the global market
– In the 20th century, the U.S. the leading
economic world power among industrialized
nations in terms of GDP
– Economies of other nations are growing at a
faster rate
– To maintain position, economy must continue
to experience growth
Why is economic
growth important?
• Increasing domestic resources
– With economic growth, comes an expanded
tax base of which the government can use for:
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National defense
Education
Fire protection
Police services
Other services such as welfare & job training
Reduction of federal deficit
May lead to lower taxes
What are the requirements
of economic growth?
• Natural resources
– Businesses in the U.S. have access to
plentiful amounts of timber, coal, natural gas &
minerals
– Some resources, such as oil & diamonds must
be imported
– Since we are dependent on other nations for
some of our resources, it is important that we
protect the resources that we do have
What are the requirements
of economic growth?
• Human resources
– Labor input is the size of the employed work
force multiplied by the length of the average
workweek
– Workweek has decreased, while size of labor
force has increased over the last 100 years
– May result in population growth and increase
of women & minorities joining the labor force
What are the requirements
of economic growth?
• Capital resources
– Increasing total stock of capital goods
increases total production
• The more farmland, machines, factories, and
production plants in a nation, the more it is likely to
produce
• Stock of technologically advanced equipment &
facilities results in increased efficiency
What are the requirements
of economic growth?
• Entrepreneurship
– Entrepreneurs provide new products, new
markets, and new jobs
– Policies that ease start up of new businesses
increase this
– New goods & services provided offer
consumers more choices & improved standard
of living
What is the relationship
between economic growth
& productivity?
• Economists estimate & determine a
nation’s capacity to produce goods by it’s:
– Labor productivity is a measure of how
much each worker produces in a given period
of time
– Productivity growth is an increase in the
output of each worker per hour of work
What is the relationship
between economic growth
& productivity?
• Technological advances
– Inventions & innovation—new knowledge &
new ways of applying that knowledge
• New ideas, methods, and tools increase efficiency
& output & lower costs
– Research & development (R & D)
• Expenditures on R & D indicate the percentage of
total GDP that a nation devotes to improving its
technology
What is the relationship
between economic growth
& productivity?
• Capital deepening
– Capital-to-labor ratio measures productivity by
the among of capital stock available per worker
• This ratio is calculated by dividing the total amount of capital
stock by the size of the workforce
– When the amount of a nation’s capital goods
increases faster than the size of the workforce,
capital deepening—an increase in the amount of
capital goods available per worker—results
• Better machines, tools, equipment, & work facilities results in
producing more in less time
What is the relationship
between economic growth
& productivity?
• Educated & skilled labor force
– As skills required to perform certain jobs
increase, employees must continue to learn &
improve their skills
– For the U.S. to compete in the world market, it
is vital that it invest in better education,
improved access to college & vocational
programs & increased numbers of job training
programs
What is the relationship
between economic growth
& productivity?
• Additional factors
– Attitude & motivational level of workers
– Dedication to jobs
– Loyalty—all affect production levels