Download Ch. 12 Gross Domestic Product and Growth

Block 5/4 – 5/5
1. Define the term “standard of living”.
2. List the qualities of life that characterize a high
standard of living.
 Today we are going to explain the relationship
between economic growth and standard of living.
Ch. 12 Gross Domestic Product
and Growth
12.3 “Economic Growth”
Measuring Economic Growth
 GDP and Population Growth
 Econ production must grow to
meet the growing populations
demands
 Real GDP per capita is the best
measure of standard of living
 GDP and Quality of Life
 GDP does not measure the
distribution of wealth
Capital Deepening
 Two types of labor force capital
1.
Physical capital
 Equipment used to produce g/s
2. Human capital
 Training, skills and educ acquired
by a worker
 The more you have the greater
the commodity you become
 Both lead to increased output
Saving and Investment
 Any money not spent on g/s is
saved by individuals
 Banks then increase the
amount of money available for
loans
 Increase in loans leads to
increased investment
 Increased investment leads to
increased capital per worker
Population, Government and Trade
 Population Growth
 In order for living standards to rise,
capital must increase at a faster
rate than population growth
 Ie: India
 Government
 Tax rate increase leads to less
investment and vice versa
 Foreign Trade
 Trade deficit: the value of goods a
country imports is greater than its
exports
 Deficits are bad unless they are
investment goods
Technological Progress
 Measuring Technological
Progress
 1987 Robert Solow
 How much growth in output
comes from capital
 How much growth in capital
comes from labor
 The difference in growth
comes from tech
advancement
 Causes of Technological Progress
1.
2.
3.
Scientific Research
Innovation
Scale of the market

4.
5.
Larger markets provide greater
incentive since potential profits
are greater
Education and experience
Natural resource use

Lead to new tech to:



Harvest material
Provide substitute
New use for otherwise unusable
resource or waste

Water used for petro drilling
Check for Understanding
1. How are saving and investment are related to
economic growth?
2. Summarize the impact of population growth and
govt. on economic growth.
3. List the causes and impacts of technological
progress.