Download Economic Growth

Understanding Economics
3rd edition
by Mark Lovewell, Khoa Nguyen and Brennan Thompson
Chapter 17
Economic Growth
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Learning Objectives
In this chapter, you will:
•
•
learn about economic growth, its
resources, and its impact
examine economic development, its
dynamics, the vicious circle of poverty,
and the strategies used to break the
circle
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Production Possibilities Curve
o
Economic growth can be portrayed
using the production possibilities
curve in two ways
•
•
an outward shift in the production
possibilities curve due to technological
change or an increase in economic
resources
a movement towards the curve because
not all resources have been employed or
used to their fullest capacity
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Process of Economic Growth
Figure 17.1, Page 409
Hamburgers
PPC1
PPC0
a
40
0
1
2
Lasers
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Growth Strategies
o
o
An economy can increase its rate of
economic growth by expanding its
production of capital goods at the
cost of fewer consumer goods in the
same period
The benefits of a high growth
strategy multiply over time allowing a
country to produce not only more
capital goods but also more consumer
goods
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Production Options and Their
Implications
Figure 17.2, Page 410
Country A
Country B
b
Hamburgers
Hamburgers
250
c
100
a
40
0
d
200
PPC
1
2
Lasers
PPCA
PPC
0
1
PPCB
2
Lasers
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Rule of 72
o
The Rule of 72
•
•
shows the effects of exponential growth
states that the number of years it takes a
variable to double can be estimated by
dividing 72 by the variable’s annual
percentage change
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
GDP and Growth Rates
Figure 17.3, Page 411
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Real GDP in Country X
(2% annual growth
in real GDP)
Real GDP in Country Y
(4% annual growth
in real GDP)
$ 100.00 billion
102.00 billion
104.04 billion
106.12 billion
108.24 billion
110.41 billion
112.62 billion
114.87 billion
117.17 billion
119.51 billion
121.90 billion
$100.00 billion
104.00 billion
108.16 billion
112.49 billion
116.99 billion
121.67 billion
126.53 billion
131.59 billion
136.86 billion
142.33 billion
148.02 billion
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Sources of Economic Growth (a)
o
o
A main cause of growth in Canada’s real
output is the increase in the quantity of
labour
Growth in per capita output is closely
associated with growth in labour
productivity which depends on six
factors
•
•
•
•
the quantity of capital
technological progress
the quality of labour
efficiency in production
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Sources of Economic Growth (b)
•
•
the quantity of natural resources
social and political factors
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Labour Productivity Growth in Selected
Countries (1989-2000)
4.7
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
4
2
1.8
1.4
Ca
na
da
G
er
m
an
So
y
ut
h
Ko
re
a
.
U.
K
Ita
ly
1.3
Ire
la
nd
1.7
Fr
an
ce
1.4
Ja
pa
n
.
1.6
U.
S
% change
Figure 17.4, Page 433
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Benefits of Growth
o
There are three main advantages of
economic growth
•
•
•
its positive effect on living standards
its possible effect on social improvements
its psychological benefits
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Costs of Growth
o
There are three main disadvantages
of economic growth
•
•
•
its opportunity cost in terms of sacrificed
current consumption
its environmental costs
its social costs
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The World’s Rich and Poor
o
The World Bank classifies nations into
three groups based on their per
capita GNP (1995 figures)
•
•
•
high-income countries (US$9266 or
more)
middle-income countries (US$756 to
$9265)
low-income countries (US $755 or less)
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Countries Classified by per Capita Income
Figure 17.5, Page 418
Copyright
© 2005
McGraw-Hill
Ryerson
Limited.
All rights
reserved.
Copyright
© by
2005
by McGraw-Hill
Ryerson
Limited.
All rights
reserved.
Indicators of Living Standards for
Selected Countries (a)
Figure 17.6, Page 419
Per Capita
GNP
(2000)
High-Income Countries
1. Japan
2. U.S.
3. Sweden
4. Canada
All high-income
countries
Life
Infant
Adult
Commercial
Average Population
(millions)
Expectancy
Mortality
Illiteracy
Energy Use
Annual
(2000)
at
(per 1000 (females %) per Capita
Growth
Birth
live
births) (2000)
(kg of oil
Rate (%)
(years)
(2000)
equivalent)
(1990-2000)
(1999)
35 620
34 100
27 140
21 130
1.3
3.5
1.9
2.9
127
282
9
31
81
77
80
79
4
7
3
5
…
…
…
…
4 070
8 159
5 769
7 929
27 680
2.5
903
78
6
…
5 448
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Indicators of Living Standards for
Selected Countries (b)
Figure 17.6, Page 419
Per Capita
GNP
(2000)
Middle-Income Countries
1. Hungary
2. Mexico
3. Egypt
4. China
All middle-income
countries
Life
Infant
Adult
Commercial
Average Population
(millions)
Expectancy
Mortality
Illiteracy
Energy Use
Annual
(2000)
at
(per 1000 (females %) per Capita
Growth
Birth
live
births) (2000)
(kg of oil
Rate (%)
(years)
(2000)
equivalent)
(1990-2000)
(1999)
4 710
5 070
1 490
840
1.5
3.1
4.6
10.3
10
98
64
1 262
71
73
67
70
9
29
42
32
1
10
56
24
2 512
1 543
709
868
1 970
3.6
2 695
70
31
19
1 325
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Indicators of Living Standards for
Selected Countries (c)
Figure 17.6, Page 419
Per Capita
GNP
(2000)
Low-Income Countries
1. Azerbaijan
2. Indonesia
3. India
4. Ethiopia
All low-income countries
World
Life
Infant
Adult
Commercial
Average Population
(millions)
Expectancy
Mortality
Illiteracy
Energy Use
Annual
(2000)
at
(per 1000 (females %) per Capita
Growth
Birth
live
births) (2000)
(kg of oil
Rate (%)
(years)
(2000)
equivalent)
(1990-2000)
(1999)
600
570
450
100
410
-6.3
4.2
6.0
4.7
3.2
8
210
1 016
64
2 460
72
66
63
42
59
13
41
69
98
76
…
18
55
69
47
1 575
658
482
290
567
5 170
2.7
6 057
66
54
…
1 671
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Gap Between Rich and Poor
o
o
Despite higher average growth rates
in low-income countries than in highincome countries per capita incomes
in most low-income countries have
risen less quickly in dollar terms
This is because of the relative size of
incomes in each group of countries
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Dynamics of Development
o
o
Economic development is an increase in
a country’s per capita income
accompanied by a rise in living standards
for the bulk of the population
Many low-income countries trying to
foster economic development are
trapped by the vicious cycle of poverty
whereby low living standards result in
slow growth thereby keeping living
standards low in the future
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
The Vicious Cycle of Poverty
Figure 17.7, Page 421
Low per
capita income
Low productivity
growth
Low investment in capital
and human resources
Rapid population
growth
Labour-intensive
production
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Strategies for Development (a)
o
Breaking the vicious cycle of poverty
involves three domestic strategies for
development
•
•
•
ensuring political and economic stability
investing in human capital and capital
goods
population control
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Global Populations Trends
Figure 17.8, Page 422
Low- and Middle-Income Countries
Sub-Saharan Africa
East Asia and Pacific
South Asia
Europe and Central Asia
Middle East and Northern Africa
Latin America and the Caribbean
High-Income Countries
World
1980
Population
(millions)
2000
20015
(estimated)
3640
382
1397
901
426
174
360
790
4429
5154
659
1855
1355
474
295
516
903
6057
6154
881
2098
1682
479
389
625
948
7101
Estimated Annual;
Growth Rate (%)
1980-2000 2000-2015
1.7
2.7
1.4
2.0
0.5
2.6
1.8
0.7
1.6
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
1.2
1.9
0.8
1.4
0.1
1.8
1.3
0.3
1.1
Strategies for Development (b)
o
Breaking the vicious cycle of poverty
involves two international strategies
for development
•
•
trade liberalization
foreign aid
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Shifting Gears (a)
o
Nuala Beck identifies three
movements that have shaped
economic development since 1850
•
•
•
commodity processing (C circle)
mass-manufacturing (M circle)
technology (T circle)
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Shifting Gears (b)
o
According to Beck each circle has been
driven by a crucial resource in abundant
supply
•
•
•
o
steel (C circle)
energy (M circle)
microchips (T circle)
According to Beck the emerging T circle
represents Canada’s new economy,
which already employs 70% of
Canadians
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Long-Term Economic Growth (a)
(Online Learning Centre)
o
o
According to Stanford economist
Charles Jones, there were virtually no
gains in average living standards
between the days of the Roman
Empire and end of the 18th century.
In the past 100 years, there has been
a spectacular rise in living standards
(by historical standards).
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Long-Term Economic Growth (b)
(Online Learning Centre)
o
Jones highlights two reasons for this
rise
•
•
rapid population growth, which led to
many more people producing many more
ideas
a major improvement in institutions that
promote innovation, with the
development of property rights, in
particular for inventors
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Long-Term Economic Growth (c)
(Online Learning Centre)
o
In the past century, average living
standards and population have risen
•
•
The world’s per capita consumption in
today’s dollars was $270 (US) in 2500
BCE and $360 (US) in 1500 and $322
(US) in 1900. Today it is $3116 (US).
Population figures have also risen over
the past 100 years, from 1.6 billion in
1900 to 6 billion today.
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.
Understanding Economics
3rd edition
by Mark Lovewell, Khoa Nguyen and Brennan Thompson
Chapter 17
The End
Copyright © 2005 by McGraw-Hill Ryerson Limited. All rights reserved.