Ch 17-ECONOMIC GROWTH 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER...
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Ch 17-ECONOMIC GROWTH 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER CAPITA
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Transcript of Ch 17-ECONOMIC GROWTH 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER...
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
A
B
C
D
a
b
Cap
ital
Go
od
s
Consumer Goods0
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
•Size of employed labor force•Average hours of work
•Technological advance•Quantity of capital•Education and training•Allocative efficiency•Other
REALGDP
SUPPLY DETERMINANTSOF REAL OUTPUT
LaborInputs(Hours
of Work)
LaborProductivity
(AverageOutput
Per Hour)
X =
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
A
B
C
D
Ca
pit
al G
oo
ds
Consumer Goods
Pri
ce
Lev
el
Real GDP
ASLR1 ASLR2
Q1 Q2
ECONOMIC GROWTH IN THEEXTENDED AD – AS MODEL
Pri
ce L
evel
Real GDP
o
P1
AS2
ASLR1
AD2
Q1
ASLR2
Q2
AD1
AS1
P2
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
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: STANDARD OF LIVING WORKING CONDITIONS LEISURE GETTING RID OF
POVERTY MORE OPTIONS TO
DEAL WITH ENVIRONMENTAL ISSUES
*ONLY LIMIT TO GROWTH IS HUMAN IMAGINATION
