Transcript Chapter 16
25 Economic Growth McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Economic Growth • Increase in real GDP or real GDP per • • • capita over some time period Percentage rate of growth Growth as a goal Arithmetic of growth: Rule of 70 Approximate number of years required to double real GDP LO1 70 = annual percentage rate of growth 25-2 • Economic Growth Growth in U.S. real GDP 1950-2009 • Increased 6 fold • 3.2% per year • Growth in U.S. real GDP per capita • Increased more than 3 fold • 2% per year • Qualifications • Improved products and services • Added leisure • Other impacts-environment, quality of life LO1 25-3 Modern Economic Growth • Began with the Industrial Revolution • • • • • LO2 in late 1700s Ongoing increases in living standards Time for leisure Social change-education, social status, women Democracy Human lifespan doubled 25-4 Modern Economic Growth • Began in Britain • Has spread slowly • Starting date main cause of worldwide • LO2 differences in living standards Catching up is possible • Leader countries invent technology • Follower countries adopt technology • Can grow faster 25-5 Modern Economic Growth Country Real GDP per capita, 1960 United States $ 14,766 United Kingdom 11,257 France 9,347 Ireland 6,666 Japan 5,473 Singapore 4,149 Hong Kong 3,849 South Korea 1,765 Real GDP per capita, 2007 $42,887 32,181 29,663 41,625 30,585 44,619 43,121 23,850 Average annual growth rate, 1960-2007 2.3% 2.3 2.5 4.0 3.7 5.2 5.3 5.7 Figures are in 2005 dollars Source: Penn World Table version 6.3, pwt.econ.upenn.edu LO2 25-6 Modern Economic Growth LO3 25-7 Institutional Structures of Growth • Strong property rights • Patents and copyrights • Efficient financial institutions-banks • Literacy and widespread education • Free trade-specialization, new ideas, but also movement of jobs • Competitive market systemeconomic and political freedom, regulation, hard work, immigration LO3 25-8 Determinants of Growth Supply factors Demand factor • Increases in quantity • Households, businesses, and quality of natural and government must resources purchase the economy’s • Increases in quality and expanding output quantity of human resources Efficiency factor • Increases in the supply • Must achieve economic (or stock) of capital goods efficiency and full • Improvements in employment technology LO3 25-9 Accounting for Growth • Real GDP= hours of work x labor productivity • Factors affecting productivity growth • Technological advance (40%) • New prod. Techniques, managerial methods, • • • LO3 improved processes Quantity of capital (30%) • Saving and investing in new plant and equipment Education and training (15%) • Human capital-the knowledge and skill that make a worker productive • Mixed bag-more college educated but we’re behind many other nations in science and math. Economies of scale and resource allocation (15%) 25-10 Productivity Growth • Average rate of growth • 1.5% per year 1973-1995 • 2.8% per year 1995-2009 • Affects real output, real income, and • LO4 real wages Pay higher wages without lowering profit-is that really what’s happened? 25-11 Productivity Growth • Microchip/information technology • New firms and increasing returns • Sources of increasing returns • More specialized inputs-inventory management • LO4 systems, accounting, marketing • Spreading of development costs-over MORE units • Simultaneous consumption-e-books, software programdeveloped once and cheap to reproduce • Network effects-interconnectivity-Facebook, Gmail • Network effect-magnifies the value of the output. • Learning by doing Global competition-trade deals, increased capitalism • Allowed businesses to expand beyond national borders 25-12 Economic Growth • • • • LO5 Is economic growth desirable and sustainable? Macroeconomist Robert Gordon-The Death of Innovation The antigrowth view • Environmental and resource issues • Growth doesn’t solve issues such as poverty, income inequality • Productivity but wage don’t keep up. In defense of economic growth • Higher standard of living • Growth can improve infrastructure, increase household incomes • Human imagination can solve environmental and resource issues Economic Growth • Growth is the path to greater material • • • LO5 abundance Results in higher standards of living Increases leisure time Allows for the expansion and application of human knowledge 25-14 Global Perspective LO5 25-15