Download Chapter 12.3 Notes

Section 3—Economic Growth
Measuring Economic Growth
-GDP and Population Growth
-to account for population increases in an economy economists use a
measurement of real GDP per capita
-real GDP divided by the total population
-Real GDP per capita is best measure of a nation’s standard of living
-GDP and Quality of Life
-Like measurements of GDP… real GDP per capita excludes many
factors that affect the quality of life
-state of the environment, stress, etc
-provides avg output per person but not how that output is distributed
-high per capita GDP usually means better nutrition, safer housing,
longer life spans, better education
Capitol Deepening
-The process of increasing the amount of capital per worker
-one of the most important sources of growth in modern economies.
-firms increase physical capital by purchasing more equipment…leads to
more output or economic growth
-firms + employees increase human capital through additional training +
education
Savings + Investment
-output can be used for consumption by consumers or investment by firms
-income not used for consumption is called saving
-whatever is not consumed must be invested
-savings is equal to investment
-the proportion of disposable income saved is called the savings rate
-when consumers save or invest, their money becomes available for firms to
borrow or use…this allows firms to deepen capital
-in the long run, more savings will lead to higher output + income for the
population, raising GDP and living standards
Population Growth
-if population grows while the supply of capital remains constant, the amount
of capital per worker will shrink
-this process is the opposite of capital deepening…leads to lower living
standards
Government
-government can affect the process of economic growth by raising or
lowering taxes
-government use of tax revenues also affects growth… funds spent on
public goods increase investment, while funds spent on consumption
decrease net investment
Foreign Trade
-trade deficits… importing more goods than exporting, can sometimes
increase investment + capital deepening if the imports consist of investment
goods(structures + equipment) rather than consumer goods
Technological Progress
-an increase in efficiency gained by producing more output without using
more inputs
-factors contributing to technological progress
-Scientific Research- generates new + improved production techniques
-results in better goods + services
-Innovation- when new products + ideas are successfully brought to
market, output goes up, boosting GDP + business profits.
-Scale of the Market- larger markets provide more incentives for
innovation b/c potential profits are greater.
-Education and Experience- increased human capital makes workers
more productive, educated workers also have the necessary skills
needed to use new technology
-Natural Resource Use- increase can create need for new technology