Chapter1 sources of the economic growth(1)

The sources of the economic growth

What is the economic growth ?

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Chapter One



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Chapter One

a/ What is the economic growth ?

b/ How to measure the economic growth ?

c/ A strong growth means a higher standard of living

d/ Problem : the GDP does not take in account the quality of life enough, so the HDI is needed

a/ What is the economic growth ? the economic growth is the increase of the amount of goods and services produced in a country between 2 periods (generally a year)

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economic growth

more wealth produced

Test : What is the economic growth ?

the economic growth is (several possible answers)

❏ the decrease of the amount of goods and services produced in a country between 2 periods (generally a year)

❏ the increase of the amount of goods and services produced in a country between 2 periods (generally a year)

❏ Economic growth is how much more the economy produces than it did before.

b/ how to measure the economic growth ? The economic growth is measured by the increase of the real GDP between 2 periods.

GDP : Gross Domestic Product : sum of the value added in the various activities within a country’s borders in a specific period.

It is commonly used to ● determine the economic performance of a whole country or region● make international comparisons.

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The real GDP : the main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.

explanation : When the GDP rises, we don’t know whether the prices or the quantity of goods and services produced have gone up… So we have to calculate the real GDP as if the prices have stayed the same between the 2 periods.

the economic growth rate measures the increase of the GDP in percentage between 2 periods.

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Reading : according to the World Bank, the US GDP has increased by 2.5 percent in 2015;

The US GDP has decreased by 0.3 points in comparison with 2014.

Furthermore, the French GDP has increased by 1.5 percent in 2015.

So we can say that the French GDP has increased half as fast as in the US in 2015.

Test : what is the GDP ?

the GDP is (several possible answers)

❏ the wealth produced within a country’s borders in a specific period.

❏ the sum of the of goods and services produced within a country’s borders in a specific period.

❏ the sum of the value added in the various activities within a country’s borders in a specific period.

❏ the gross domestic product

❏ the great domestic production

Beware !

Has the Australia’s GDP decreased between 1999 (5.0%) and 2001 (1.9%) ?

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yes or no ?

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no !The Australia’s growth rate has decreased between 1999 (5.0%) and 2001 (1.9%) by 3.1 points.

BUT

the GDP continued to increase : by 5.0 % in 1999 and 1.9% in 2001.

The GDP has increased more slowly :

how do we call it ?

Beware !

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The Australia’s growth rate has decreased between 1999 (5.0%) and 2001 (1.9%) by 3.1 points.

BUT

The GDP continued to increase : by 5.0 % in 1999 and 1.9% in 2001.

Actually the GDP has increased more slowly :

This is called recession.

A recession is a significant decline in activity across the economy, lasting longer than a few months, usually 2 quarters at least.

Beware !

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The Australia’s growth rate has become deeply negative in 1983 (- 2.2%).

which means

The Australian GDP has decreased by 2.2% in 1983.

which means

The Australian economic actors produced less wealth in 1983 than in 1982.

This is called depression. Depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years.

The Great Depression of the 1930’s

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Bread and soup during the Great Depression in the USPeople asking for help during the Great Depression in the UK

Watch more about the Great Depression int the USA (video 4 min) : https://www.youtube.com/watch?v=VpKmfjf5tUk

https://www.youtube.com/watch?v=VpKmfjf5tUk

Write a sentence giving the meaning of each surrounded data :

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Growth rate (%) - World Bank

(2013)

Write a sentence giving the meaning of each surrounded data :● According to the World Bank, the South Africa’s GDP has increased by about 8% in 1965.● According to the World Bank, the New Zealand’s GDP has decreased by about 2.5% in 1965.

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(2013)

recession ?

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(2013)

depression ?

show...

recession

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(2013)

depression

c/ a strong growth means a higher standard of livingGDP = wealth produced and shared = incomes = spendings

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output(GDP)

incomes

consumption

more

more

more

Test : what is the right reasoning ?

Choose the right reasoning that explains the virtuous circle of the growth :

❏ output → consumption → incomes → output...

❏ consumption → output → incomes → consumption...

❏ output → incomes → consumption → output...

❏ output → employment → incomes → demand : consumption + investment → output...

Test : what is the right reasoning ?

Choose the right reasoning that explains the virtuous circle of the growth :

❏ output → consumption → incomes → output...

❏ output → incomes → consumption → output...

❏ output → employment → incomes → demand : consumption + investment → output...

More is better, but...Inequalities may increase

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average annual growth rate (%) 1500-1820 1870-1913 1950-73 1973-98

World’s GDPWorld’s per capita GDP

0.30

2.11.3

1.80.9

4.92.9

Western Europe’s GDPw. Europe’s per capita GDP

0.410.15

2.11.3

1.20.8

4.84.1

former USSR’s GDPformer USSR’s per capita GDP

0.50.1

2.41.1

2.11.8

4.83.4

USA’s GDPUSA’s per capita GDP

0.90.4

4.01.8

2.81.6

3.92.4

South America’s GDPS. America’s per capita GDP

0.20.1

3.51.8

3.41.4

5.32.5

Japan’s GDPJapan’s per capita GDP

0.30.1

2.41.5

2.20.9

9.38.0

China’s GDPChina’s per capita GDP

0.40.0

0.60.1

0.0-0.6

5.02.9

Africa’s GDPAfrica’s per capita GDP

0.20.0

1.40.6

2.71.0

4.42.1

source : A. Maddison, L’éconoclaste, une perspective millénaire, Etudes de l’OCDE, 2001

Read : The world’s GDP grew annually by an average of 0.3% between 1500 and 1800. This is a very weak and slow growth. It accelerated since the end of the 20th century : the world’s GDP grew annually by an average of 4.9% between 1973 and 1998.

Notice : the world’s per capita GDP just grew annually by an average of 2.9% (while the GDP grew annually by an average of 4.9%) between 1973 and 1998. Moreover, the per capita GDP grew annually by an average of 8.0% in Japan in the last period, instead of 2.1% for the Africa.

...and certainly not for all the inhabitants of the earth !

d/ problem : the GDP does not consider the quality of life enough, so the HDI is needed

Limits of GDP per capita as a measurement of the well-being

Additional informations brought by the HDI

it is a quantitative measurement, which implies that the human well-being would depend on the amount of money each of us has…

a quantitative AND qualitative measurement

It is an average, that does not take in account the inequalities, whereas wealth is not shared equally.

The HDI takes in account (see next page) : ● the national income per capita● the life expectancy● the level of education

It does not take in account the negative externalities (consequences) of the economic growth.Yet the economic growth generates greenhouse gas that create the global warming. Thus the sea level is rising, floods and severe weather conditions become more common. This is aggravating the poverty and the inequalities of health, well-being.

A high HDI (close to 1) means that people have more choices, are more independent, and thus more capable of taking initiatives and innovating.→ economic growth

Conversely, a low HDI (close to 0) implies that people are poor, illiterate and dying young, which sounds harmful for growth.

problem : the GDP does not consider the quality of life enough



it is a quantitative / qualitative measurement, which implies that the human well-being would depend on the amount of money each of us has…

a quantitative AND quantitative / qualitative measurement

It is an average, that takes in account / does not take in account the inequalities, whereas wealth is not shared equally.

The HDI takes in account / does not take in account : ● the national income per capita● the life expectancy● the level of education

It does not take in account the negative / positive externalities (consequences) of the economic growth.Yet the economic growth generates greenhouse gas that create the global warming. Thus the sea level is rising/ falling , floods and severe weather conditions become more common. This is aggravating the poverty and the inequalities of health, well-being.

A high HDI (close to 1/close to 0) means that people have more choices, are more independent, and thus more capable of taking initiatives and innovating.→ economic growth

Conversely, a low HDI (close to 1/close to 0) implies that people are poor, illiterate and dying young, which sounds harmful for growth.

Choose the right answer !

problem : the GDP does not consider the quality of life enough



it is a quantitative / qualitative measurement, which implies that the human well-being would depend on the amount of money each of us has…

a quantitative AND quantitative / qualitative measurement

It is an average, that takes in account / does not take in account the inequalities, whereas wealth is not shared equally.

The HDI takes in account / does not take in account : ● the national income per capita● the life expectancy● the level of education

It does not take in account the negative / positive externalities (consequences) of the economic growth.Yet the economic growth generates greenhouse gas that create the global warming. Thus the sea level is rising/ falling , floods and severe weather conditions become more common. This is aggravating the poverty and the inequalities of health, well-being.

A high HDI (close to 1/close to 0) means that people have more choices, are more independent, and thus more capable of taking initiatives and innovating.→ economic growth

Conversely, a low HDI (close to 1/close to 0) implies that people are poor, illiterate and dying young, which sounds harmful for growth.

correction

That’s why the UNPD (United Nations Development Program) created the

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Gross National income per capita

key things to memorize

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parts of this chapter key things to memorise

a/ What is the economic growth ? definition of the economic growth

b/ How to measure the economic growth ?

GDP Growth rate : definition, readingBe careful not to confuse a decrease of the growth rate and a decrease of the GDP !Distinguish depression and recessionThe Great Depression in the USA in the 30’s

c/ A strong growth means a higher standard of living

The virtuous circle of the economic growth (output → incomes → consumption → etc.but : GDP per capita show inequalitiesreading an average annual growth rate

d/ Problem : the GDP does not take in account the quality of life enough, so the HDI is needed

Main limits of the GDP per capita as a measurement of well beingAdditional informations brought by th HDIDefinition of the HDIreading an HDI



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Chapter Oneend of

How to get a stronger economic growth ?

see chapter 2

Chapter1 sources of the economic growth(1)

Education

Transcript of Chapter1 sources of the economic growth(1)