Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic democracy wikipedia , lookup
Steady-state economy wikipedia , lookup
Economics of fascism wikipedia , lookup
Protectionism wikipedia , lookup
Business cycle wikipedia , lookup
Chinese economic reform wikipedia , lookup
Long Depression wikipedia , lookup
Transformation in economics wikipedia , lookup
Ch. 16: Economic Growth: Resources, Technology, and Ideas James R. Russell, Ph.D., Professor of Economics & Management, Oral Roberts University ©2005 Thomson Business & Professional Publishing, A Division of Thomson Learning 1 What is Economic Growth? Absolute Real Economic Growth: an increase in Real GDP from one period to the next. Per Capita Real Economic Growth: an increase from one period to the next in per capita Real GDP, which is Real GDP divided by population. 2 Do Economic Growth Rates Matter? If a country has a 3 percent annual growth rate, Real GDP will take 24 years to double (72/3). If a country has a 4 percent annual growth rate, Real GDP will take 18 years to double (72/4). Rule of 72: Divide 72 by the annual growth rate to determine the number of years it will take to double in size. 3 Exhibit 1: Absolute Real Economic Growth Rates for the United States, 1990–2002 4 Economic Growth Rates for Selected Countries, 2002 Country Percentage Growth Rate in Real GDP Per Capita Real GDP Argentina -10.9% $10,500 Australia 3.6% $26,900 Bangladesh 4.8% $1,800 Belgium 0.7% $29,200 Canada 3.3% $29,300 Cuba 1.1% $2,700 Egypt 3.2% $4,000 Germany 0.2% $26,200 Iran 7.6% $6,800 Israel -0.8% $19,500 Turkey 7.8% $7,300 United States 2.4% $36,300 5 Exhibit 2: Economic Growth from an Inefficient Level of Production 6 Exhibit 3: Economic Growth from an Efficient Level of Production 7 Economic Growth and the Price Level Economic Growth can occur with: – a falling price level; – a rising price level; – A stable price level. In recent decades, the US economy has witnessed economic growth with a rising price level. 8 What Causes Economic Growth? Natural Resources Labor Capital Technological Advances Free Trade as Technology Property Rights Structure Economic Freedom 9 Exhibit 4: Investment and Per Capita Real Economic Growth for Selected Countries, 1970–1990 10 Policies to Promote Economic Growth When the economy is situated below its PPF, demand inducing expansionary monetary or fiscal policy is often advocated. There are supply-side policies too: – – – – – – – natural resources Labor increases in human capital increases in physical capital investment technological advances property rights structure economic freedom. 11 What About Industrial Policy? Industrial policy: a deliberate government policy of aiding those industries that are most likely to succeed in the world marketplace. Pro: Government needs to work with business firms in the private sector to help them compete in the world marketplace. Con: – government may favor industries with more political influence – officials who design policy don’t know what will be the industries of the future – officials are likely to hamper growth if they provide 12 protection to certain industries. Economic Growth and Special Interest Groups Types of Economic Policies – Growth-Promoting – Transfer-Promoting In The Rise and Decline of Nations, Olson argues special interest groups are more likely to argue for transfer-promoting policies. Numerous and politically strong special interest groups are detrimental to economic growth. 13 Self-Test “Economic Growth refers to an increase in GDP.” Comment. Country A has witnessed both economic growth and a rising price level during the past two decades. What does this imply about the LRAS and AD curves? How can capital investment promote economic growth? 14 New Growth Theory Technology is endogenous; it is a central part of the economic system. Amount and quality of technology developed depends on the amount of resources devoted to it. One person trying to advance technology has a much smaller chance of success than hundreds of thousands of persons trying. The theory also places emphasis on the process of discovering and formulating ideas. 15 Discovery, Ideas, and Institutions If the process of discovering ideas is important to economic growth, then it behooves us to figure out ways to promote the discovery process. Employee flexibility is becoming a larger part of the US economy. 16 Expanding Our Horizons “Economic Growth occurs whenever people take resources and rearrange them in ways that are more valuable.” If we believe ideas are important to economic growth, then we need to have ideas as to how to generate more ideas: these are meta-ideas. 17 Self-Test What are two worries about future economic growth? If technology is endogenous, what are the implications for economic growth? According to new growth theory, what countries will be the countries that grow the fastest in the next century? 18