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Ch 7 Ecological Economics: From an Empty World to a Full World (through Growth) ECN101 Prof. Grob www.stmartin.edu How much am I worth? Expectations • Understand how growth rates are calculated • Introduction to GDP • Use the rule of 72 • Describe factors influencing growth • How do we know we’re close to a “full world”? www.stmartin.edu Rule of 72: The power of growth rates How many years does it take to double the rate of growth? Years to double = 72 . Growth rate Economic growth What is the GDP? Gross Domestic Product is the market value of all final goods and services produced within a country in a given year What are the components of GDP? • Personal consumption expenditures • Gross private domestic investments • Government purchases of goods &services • Net exports (exports minus imports) • GDP=C + I + G + X-M Rates of Economic Growth • Rate of economic growth is the percent change in economic activity from one year to the next. • Many people look at the GDP, but there are other measures out there too. • Are new products in fact a reflection of our economic progress? Calculating rates of economic growth Rate of growth= Y2 Real GDP – Y1 Real GDP Y1 Real GDP Calculating the Real GDP Real GDP= Nominal GDP X 100 GDP deflator How fast can the economy grow? • Mainstream view: 2.5% growth per year • Some even say 5% may be sustainable • Several nations have been able to double their GDP in less than 28 years • What are the implications for use of natural resources? • What would ecological economists say? What factors affect economic growth? • Availability of resources! • Initial levels of input (land, labor, capital) • Allocation of resources • Productivity • Capital Investments (human & physical) • Government policies • Business policies • Consumer sentiment Economies have different starting points • Natural resources • Physical capital • Human capital • Economic efficiency How economies grow • Natural resources: shift inputs toward production • Human capital: provide incentives to work • Physical capital: provide investment incentives • Increase efficiency in production Natural resources are the “first pillar of economic growth” • “Gifts” “usable in production” • Renewable vs. nonrenewable • Will technology provide alternatives? Physical capital • Computers, machinery, tools help us to produce goods and services • Investment in physical capital can achieve productivity increases • It involves and opportunity cost: future consumption for forgone consumption today • Government is a source of physical capital in that roads, bridges, airports and utilities comprise an infrastructure for human activity including production and that could increase efficiency Human Capital • Improve knowledge, experience and skills of the workforce • Teach people to adapt to changing situations and to innovate • Formal training • On the job experience Economic Efficiency • Producing more with fewer inputs • Invention and innovation • Market structures can influence efficiency as we will learn • Opening markets abroad (freeing resources abroad) • Import methods or “reverse engineer” What can government do to increase growth? What should government do to increase growth? How do we know if we’re close to a full world?