Transcript Ch 17-ECONOMIC GROWTH

Ch 17-ECONOMIC GROWTH
2 POSSIBLE DEFINITIONS:
1-INCREASE IN REAL GDP
2-INCREASE IN REAL GDP PER CAPITA
6 INGREDIENTS OF GROWTH
 4 SUPPLY FACTORS
 1-quantity &
quality of natural
resources
 2-quantity &
quality of human
resources
 3-supply of capital
goods
 4-technology
 2 DEMAND
FACTORS
 1-AD must increase
for production to
expand
 2-fully employment
of resources with
productive &
allocative efficiency
PRODUCTION POSSIBILITIES ANALYSIS
Economic
Growth
Capital Goods
C
A
b
a
0
B
D
Consumer Goods
GROWTH RECORD OF US
 INCREASED 6X SINCE 1950
 BUT GROWTH DOESN’T MEASURE:
 1-QUALITY IMPROVEMENTS
 2-INCREASED LEISURE TIME
 3-ADVERSE EFFECTS ON ENVIRONMENT
SUPPLY DETERMINANTS
OF REAL OUTPUT
•Size of
employed
labor force
•Average hours
of work
Labor
Inputs
(Hours
of Work)
X
•Technological
advance
Labor
•Quantity of capital Productivity
•Education and
(Average
training
Output
•Allocative
Per Hour)
efficiency
•Other
=
REAL
GDP
HOW TO ACCOUNT FOR
GROWTH
 More labor input---accounts for 1/3 of
total economic growth
 Technological advances—account for
26% of US growth since 1929
 Increases of capital—accounts for
18%
 Education & training—improves
quality of labor
 12% of growth from improved
resource allocation & economies of
scale
GROWTH IN THE AD-AS MODEL
ASLR1 ASLR2
C
Price Level
Capital Goods
A
B
D
Consumer Goods
Q1 Q2
Real GDP
ECONOMIC GROWTH IN THE
EXTENDED AD – AS MODEL
ASLR1
ASLR2
AS2
Price Level
AS1
P2
P1
AD2
AD1
o
Q1
Real GDP
Q2
OTHER ITEMS THAT HELP
ECONOMIC GROWTH
 Social/political/cultural environment
that are “growth” friendly
 Respect for material success
 Property rights & legal system
 Market system rewards growth
NEW ECONOMY BASED ON
PRODUCTIVITY ACCELERATION
 Improved standard of living based on labor
productivity
 1-microchip technology
 2-new firms & increasing profits
Reasons for increasing returns(profits)
A-more specialized inputs
B-increased consumption
C-spread R & D costs over large output
 Keep MC low
 D-networking make info goods more valuable
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PRODUCTIVITY ACCELERATION
PART 2
 3-Global competition encourages
efficiency
 4-Faster growth w/o inflation possible
with higher productivity
 5-NRU decreasing from 6%
IS GROWTH DESIRABLE &
SUSTAINABLE?
 ANTI-GROWTH
 GROWTH
CAUSES:
 ENVIRONMENTAL
PROBLEMS
 HIGH STRESS
 DEAD-END JOBS;
BURNOUT
 PRO-GROWTH
 GROWTH CAUSES
IMPROVEMENTS IN:
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
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STANDARD OF LIVING
WORKING CONDITIONS
LEISURE
GETTING RID OF
POVERTY
MORE OPTIONS TO
DEAL WITH
ENVIRONMENTAL
ISSUES
*ONLY LIMIT TO
GROWTH IS HUMAN
IMAGINATION