Transcript Chapter 6
#
5
McGraw-Hill/Irwin
GDP and Economic Growth
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO1 Gross Domestic Product
• • • Measure of aggregate output Monetary measure Avoid multiple counting • • • Market value of final goods Ignore intermediate goods Count value added
5-2
Gross Domestic Product Comparing Heterogeneous Output by Using Money Prices Year
1 2
Annual Output Market Value
3 sofas and 2 computers 3 at $500 + 2 at $2000 = $5500 2 sofas and 3 computers 2 at $500 + 3 at $2000 = $7000
5-3 LO1
LO1 Gross Domestic Product
• Exclude financial transactions • • • Public transfer payments Private transfer payments Stock (and bond) market transactions • Exclude secondhand sales • Sell used car to a friend
5-4
LO1 Measuring GDP
• Expenditure approach • Count sum of money spent buying the final goods
5-5
LO1 Expenditures Approach
• Personal consumption expenditures (
C
) • • • Durable consumer goods Nondurable consumer goods Consumer expenditures for services • Domestic plus foreign goods produced
5-6
LO1 Expenditures Approach
• Gross private domestic investment (
I g
) • Machinery, equipment, and tools • All construction • Changes in inventories • • Creation of new capital assets Noninvestment transactions excluded
5-7
LO1 Expenditures Approach
• • • Government purchases (
G
) • • • Expenditures for goods and services Expenditures for publicly owned capital Excludes transfer payments Net exports (
X n
) • Add exported goods and subtract imported goods •
X n
= Exports – Imports
GDP
=
C + I
g
+ G + X
n
5-8
LO1 Comparative GDP 5-9
LO2 Nominal versus Real GDP
• GDP is a dollar measure of production • • • Using dollar values creates problems Nominal GDP • Use prevailing price Real GDP • • Reflect changes in price Use base year price
5-10
LO2 GDP Price Index
Calculating Real GDP (Base year = Yr 1)
Year
1 2 3 4 5
(1) Units of Output
5 7 8 10 11
(2) Price of Pizza per Unit
$10 20 25 30 28
(3) Price Index (Year 1 = 100)
100 200 250 ___ ___
(4) Unadjusted, or Nominal, GDP (1)
×
(2)
$ 50 140 200 ___ ___
(5) Adjusted, or Real, GDP
$50 70 80 ___ ___
5-11
LO3 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 = 70 Annual percentage rate of growth
5-12
Economic Growth LO3
• • • Growth in U.S. real GDP 1950 –2009 • • Increased sixfold 3.2 percent per year Growth in U.S. real GDP per capita • • Increased more than threefold 2 percent per year Qualifications • • • Improved products and services Added leisure Other impacts
5-13
LO3 (1) Year
1950 1960 1970 1980 1990 2000 2010
Economic Growth
Real GDP and Real GDP per Capita
(2) Real GDP, Billions of 2005 $
$ 2,006 2,831 4,270 5,839 8,034 11,226 13,248
(3) Population, Millions
152 181 205 228 250 282 309
(4) Real GDP, per Capita, 2005 $ (2)
÷
(3)
$13,197 15,640 20,829 25,610 32,136 39,809 43,456 Source: Bureau of Economic Analysis,
www.bea.gov
and U.S. Census Bureau
, www.census.gov
5-14
LO3 Average Annual Growth Rates 5-15
LO4 Determinants of Growth
• Supply factors • Increases in quantity and quality of natural resources • Increases in quality and quantity of human resources • Increases in the supply (or stock) of capital goods • Improvements in technology
5-16
LO4 Determinants of Growth
• • Demand factor • Households, businesses, and government must purchase the economy’s expanding output Efficiency factor • Must achieve economic efficiency and full employment
5-17
LO4 Production Possibilities
C A
Economic growth
a c b B D
Consumer goods 5-18
Inputs and Productivity
Real GDP = Hours of work × labor productivity •
Size of employed labor force
•
Average hours of work
• • • • •
Technological advance Quantity of capital Education and training Allocative efficiency Other x Labor inputs (hours of work) Labor productivity (average output per hour) = Real GDP 5-19 LO5
Accounting for Growth
Accounting for the Growth of U.S. Real GDP, 1953 –2007, Plus Projection from 2009–2021
1953 Q2 to 1973 Item
Increase in real GDP Increase in quantity of labor Increase in labor productivity 3.6
1.1
2.5
Q4 1973 Q4 to 1995 Q4 1995 Q4 to 2001 Q1 2001 Q1 to 2007 Q3
2.8
1.3
1.5
3.8
1.4
2.4
2.6
-0.1
2.7
LO5 Projected 2010 Q1 to 2021 Q4
2.5
0.2
2.3
(average percentage changes)
Source:
Derived from
Economic Report of the President, 2008,
p. 45; and
Economic Report of the President, 2011,
p. 82
5-20
LO5 Accounting for Growth
• Factors affecting productivity growth • • • • Technological advance (40 percent) Quantity of capital (30 percent) Education and training (15 percent) Economies of scale and resource allocation (15 percent)
5-21
LO4 Education and Training 5-22
LO5 Institutional Structures
• • • • • Strong property rights Patents and copyrights Efficient financial institutions Free trade A competitive market system
5-23
Productivity Growth LO6
• • • • Microchip/information technology New firms and increasing returns Sources of increasing returns • • • • • More specialized inputs Spreading of development costs Simultaneous consumption Network effects Learning by doing Global competition
5-24
LO6 Productivity Growth 5-25
LO7 Economic Growth
• Is economic growth desirable and sustainable?
• • The antigrowth view • Environmental and resource issues In defense of economic growth • • Higher standard of living Human imagination can solve environmental and resource issues
5-26
LO7 Economic Growth
• Growth is the path to greater material abundance • • • Results in higher standards of living Increases leisure time Allows for the expansion and application of human knowledge
5-27
LO7 Country Global Snapshot
Switzerland Singapore Sweden Finland United States Germany Netherlands Denmark Japan United Kingdom
Global Competitiveness Ranking, 2011-2012
1 2 3 4 5 6 7 8 9 10
5-28