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Transcript
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
LO1
25-3
Economic Growth
Real GDP and Real GDP per Capita
LO1
(4)
Real GDP,
Per Capita,
2005$
(2) ÷ (3)
(1)
Year
(2)
Real GDP,
Billions of 2
2005$
1950
$ 2006
152
$12,197
1960
2831
181
15,640
1970
4270
205
20,829
1980
5839
228
25,610
1990
8034
250
32,136
2000
11,226
282
39,809
2009
12,987
307
42,303
(3)
Population,
Millions
Source: Bureau of Economic Analysis, http://www.bea.gov
and U.S. Census Bureau, http://www.census.gov
25-4
Modern Economic Growth
• Began with the Industrial Revolution
•
•
•
•
•
LO2
in late 1700s
Ongoing increases in living standards
Time for leisure
Social change
Democracy
Human lifespan doubled
25-5
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
25-6
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
25-7
Modern Economic Growth
LO3
25-8
Institutional Structures of Growth
• Strong property rights
• Patents and copyrights
• Efficient financial institutions
• Literacy and widespread education
• Free trade
• Competitive market system
LO3
25-9
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
LO3
25-10
Determinants of Growth
• Demand factor
• Households, businesses, and
•
LO3
government must purchase the
economy’s expanding output
Efficiency factor
• Must achieve economic efficiency
and full employment
25-11
Production Possibilities
From Chapter 1:
Capital Goods
C
A
Economic
Growth
c
b
a
B
D
Consumer Goods
LO3
25-12
Labor and Productivity
Real GDP = hours of work x labor productivity
• Size of
employed
labor force
Labor
Inputs
(hours of
work)
• Average
hours of
work
x
• Technological
advance
• Quantity of
capital
• Education and
training
• Allocative
efficiency
• Other
LO3
=
Real
GDP
Labor
Productivity
(average
output per
hour)
25-13
U.S. Economic Growth
Accounting for the Growth of U.S. Real
GDP, 1953-2007, Plus Projection from
2009-2020
1953 Q2
To 1973 Q4
Item
Increase in real GDP
1973 Q4
To 1995 Q4
1995 Q4
To 2001 Q1
2001 Q1
To 2007 Q3
Projected
2009 Q1
To 2020 Q4
3.6
2.8
3.8
2.6
2.5
Increase in quantity of labor
1.1
1.3
1.4
-0.1
0.2
Increase in labor productivity
2.5
1.5
2.4
2.7
2.3
(Average Percentage Changes)
Source: Derived from Economic Report of the President, 2008, p. 45;
and Economic Report of the President, 2010, p. 76
LO3
25-14
Accounting for Growth
• Factors affecting productivity growth
• Technological advance (40%)
• Quantity of capital (30%)
• Education and training (15%)
• Economies of scale and resource
allocation (15%)
LO3
25-15
Accounting for Growth
Average Test Scores of Eighth Grade
Students in Math and Science, 2007
Mathematics
LO3
Science
25-16
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
25-17
Productivity Growth
• 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
LO4
25-18
Productivity Growth
LO5
25-19
Economic Growth
• Is economic growth desirable and
•
•
LO5
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
25-20
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
25-21
Global Perspective
LO5
25-22
Economic Growth in China
• Growth averages past 25 years:
• 9% annual growth output
• 8% annual growth output per capita
• Labor more productive
• More international trade
• Transition to market economy
• Joined WTO 2001
• Financial system remains weak
• Income inequality across areas
LO5
25-23
Video – Education
Video – Chinese Bubble
Video – Chinese Growth
• Chinese student enrolments rose in the US to nearly
158,000 students, putting China in the lead.
• Growth in international enrolments is an economic boon
for the US. International students contribute more than
$21 billion to the US economy, $10.2 billion more than a
decade ago.
• They also stimulate the local economy by paying rent
and buying items such as health insurance and
textbooks, generating revenue of nearly $3 billion in
some states.
• The top fields of study include: business and
management, and engineering, followed by physical and
life sciences, mathematics and social sciences.
Practice Question
1. Real GDP per capita is found by:
A. adding real GDP and population.
B. subtracting population from real GDP.
C. dividing real GDP by population.
D. dividing population by real GDP.
C
C
Practice Question
2. At an annual growth rate of 7 percent, real GDP
will double in about:
A. 11 ½ years.
B. 10 years.
C. 13 ½ years.
D. 9 years.
C
B
Practice Question
3. Refer to the table.
Between years 1 and 2,
real GDP grew by
__________ percent in
Alta.
A. 3
B. 4
C. 5
D. 10
C
C
Practice Question
4. Real per capita GDP:
A. grows at approximately the same rate for all
countries.
B. was much more equal across nations in 1820
than it is today.
C. has been about 20 times higher in the richer
nations than the poorer nations for about 2000
years.
D. grows much faster in "leader countries" than in
"follower countries."
C
B
Practice Question
5. Which of the following institutional arrangements
is most likely to promote growth?
A. Patents and copyrights that expire quickly and
are loosely enforced.
B. Strong government control over resource
allocation decisions.
C. Unrestricted trade between nations.
D. All of these.
C
C
Practice Question
6. Other things equal, which of the following would
increase the rate of economic growth, as
measured by changes in real GDP?
A. A decline in the average length of the work
week.
B. A decrease in the labor force participation rate.
C. An increase in the size of the working age
population.
D. A decline in the amount of capital per worker.
C
C
Practice Question
7. Suppose total output (real GDP) is $4000 and
labor productivity is $8. We can conclude that:
A. real GDP per capita must be $500.
B. the price-level index must be greater than 100.
C. nominal GDP must be $500.
D. the number of worker-hours must be 500.
C
D
Practice Question
8. Refer to the above graph.
Growth of production
capacity is shown by the:
A. shift from AB to CD.
B. shift from CD to AB.
C. movement away from
point A and toward point B.
D. movement away from
point B and toward point A.
C
A
Practice Question
9. Human capital refers to:
A. the skills and knowledge that enable a worker to
be productive.
B. machinery used by labor in production.
C. the accumulated financial wealth of households.
D. physical capital owned by households rather
than businesses.
C
A
Practice Question
10. A nation's infrastructure refers to:
A. its ability to realize economies of scale.
B. its stock of technological knowledge.
C. public capital goods such as highways and
sanitation systems.
D. the productivity of its labor force.
C
C
Practice Question
11. Which of the following would not be expected
to increase labor productivity?
A. technological advance
B. the acquisition of more education and training
by the labor force
C. an increase in the size of the labor force
D. the realization of economies of scale
C
C
Practice Question
12. If the growth trend of labor productivity is 3
percent per year, the number of years that it will
take for the standard of living to double will be
about:
A. 15 years.
B. 17 years.
C. 20 years.
D. 23 years.
C
D
Practice Question
13. All of the following are economic implications
of the recent rise in the average rate of productivity
growth except:
A. a lower natural rate of unemployment.
B. larger outward shifts of the economy's
production possibilities curve.
C. an end to the business cycle.
D. a greater rate of economic growth.
C
C
Practice Question
14. Economists who believe that the recent rise in the
average rate of productivity growth will be long lasting
say that:
A. the United States is entering an era of high structural
unemployment due to rapid technological change.
B. technological advance creates its own supply, which
in turn creates its own demand.
C. innovations in computers and communications,
together with global capitalism, are greatly boosting U.S.
productivity and the economy's potential economic
growth rate.
D. technological change will require more central
planning and government regulation.
C
C
Practice Question
15. Increases in the value of a product to each
user, including existing users, as the total number
of users rises are called:
A. information cascades.
B. learning effects.
C. network effects.
D. scale economies.
C
C
Practice Question
16. Critics of economic growth:
A. contend that growth and industrialization reduce
pollution.
B. argue that economic growth does not resolve
socioeconomic problems such as an unequal
distribution of income and wealth.
C. point out that growth results in greater
economic security for workers.
D. say that its benefits accrue nearly exclusively to
white males.
C
B
Practice Question
17. Proponents of economic growth make all of the
following arguments except:
A. Growth is the basic means of improving living
standards.
B. It is easier to reduce poverty when the economy
is growing than when it is not.
C. There is a direct relationship between a growing
real GDP and rising pollution.
D. Growth provides an economic environment
favorable to education and self-fulfillment.
C
C