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Transcript 
Chapter 11
Economic Growth: Why is the
Economic Road So Bumpy?
McGraw-Hill/Irwin
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
What Is Economic Growth?
11,000.0
Real GDP
10,000.0
9,000.0
8,000.0
7,000.0
6,000.0
5,000.0
4,000.0
3,000.0
2,000.0
11-2
The Rate of Economic Growth
220
200
3% rate of growth
Real GDP
180
160
140
2% rate of growth
120
100
Years
11-3
United States Economic Growth
2.3%
14,000.0
3.1%
12,000.0
3.1%
10,000.0
3.3%
8,000.0
4.4%
6,000.0
4,000.0
2,000.0
3.26%
0.0
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
11-4
What Are Business Cycles?
Real GDP
Short-run
fluctuations
Long-run
growth trend
Peak
Trough
Time
11-5
Leading Economic Indicators Index
•
•
•
•
•
•
•
•
•
Stock Market Prices
Real Money Supply
An Index of Consumer Expectations
Average Workweek for Production Workers in Manufacturing
Interest Rate Spread (10-year Treasury bonds less federal funds)
Initial claims for unemployment insurance
New building permits granted
New orders for consumer goods and materials
Manufacturers’ orders for new plant and equipment (nondefense
capital goods)
• Venders’ performance index for delivery of index
11-6
Theories of Business Cycles
•
•
•
•
•
•
Theories of Expectations
Theory of Innovations
Inventory Theories
Monetary Theories
Real Business Cycle Theories
Exogenous Theories
11-7
The Determinants of
Economic Growth
Good Y
C
A
B
D
Good X
11-8
The Determinants of
Economic Growth
Capital Goods
H
E
A
C
G
D
B
F
I
Consumer Goods
11-9
The Determinants of
Economic Growth
• Productivity Factors
 Productivity of labor = average product of
labor
• Human capital
• Technology
11-10
The Recent Slowdown in Growth
• Contributing Factors
 Technology Slowdown
 Labor Force Factors
 Saving and Investment
 The Composition of Output
 Government: Regulation and Public Debt
• The 2001 Recession
• The 2007 Peak and Beyond
11-11
Percentage Change in Quarterly
GDP in 2008 (Real 2000 Dollars)
4
3
2
1
0
-1
Quarter 1
Quarter 2
Quarter 3
Quarter 4
-2
-3
-4
-5
-6
-7
11-12
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