Download Economic Growth

ECONOMIC
GROWTH
I. MEASURING
ECONOMIC
GROWTH
Economic Growth
Two concepts are used to measure economic
growth:
A. REAL GDP
B. PER CAPITA REAL GDP
REAL GDP
Recall that “GDP” stands for Gross Domestic
Product.
Recall that “Real" stands for something that is
inflation adjusted
“Real GDP” is inflation adjusted Gross
Domestic Product.
REAL GDP
• We define Economic Growth as:
An increase in Real GDP
Percentage Change in Real GDP
Economic growth is commonly measured as a
percentage change in the real GDP.
Percent change in real GDP =
[Change in GDP over a year] * 100
[The Beginning value of GDP]
INCREASES IN PER CAPITA
REAL GDP
Per Capita Real GDP is defined as:
REAL GDP
POPULATION
Increases in Per Capita Real GDP
Increases in Per Capita Real GDP would be
seen as an increase in that number.
It is really a very crude measure of economic
growth.
II. WHAT DETERMINES
ECONOMIC GROWTH?
What Determines Economic
Growth?
While economists know far more about what
determines economic growth, we still
don’t have a complete set of answers.
Neither do the people in Washington, or those
who are busy exporting any quick fix
solution.
What is Economic Development?
Usually when economists talk about
economic growth, what they really mean
is ECONOMIC DEVELOPMENT.
Economic growth and economic development
are not the same!
What is Economic Development?
Economic development is harder to define and
measure.
Economic development is defined as:
A SELF-SUSTAINING
TRANSFORMATION OF THE
ECONOMY OF A SOCIETY.
Economic Growth vs. Economic
Development
You can’t have economic development
without economic growth.
But you can have economic growth without
economic development.
An economy can expand, without any
technological or social changes.
THE IMPORTANCE OF THE
FACTORS OF
PRODUCTION:
LABOR, CAPITAL, LAND
LABOR
Labor is defined as:
The total physical and mental effort
expended by people in the production of
goods and services.
LABOR
LABOR is the most important determinant
for economic growth and development.
It is not just the size of the labor force that
matters.
The quality of the labor force is more
important.
LABOR
When we talk about quality of a labor force,
we mean the level of education.
The more highly educated a labor force is, the
more likely a country will be able to
develop.
The key here is universal primary education,
which is more important than number of
college students.
CAPITAL
We define capital as:
Human made products used to produce
other products.
CAPITAL
The ability of a country to grow, but
especially to develop, depends upon its
ability to purchase or create capital goods.
But the ability to obtain capital goods depends
upon the ability to obtain money to buy or
produce them.
CAPITAL AND
THE POVERTY TRAP
Poor countries have to obtain money to buy or
to develop capital goods.
But because they are poor, they have little
savings to do either.
LAND
Land is defined as:
All types of natural resources.
LAND
We have learned that an abundance of
natural resources is not a necessary
condition for economic growth.
East Asia is the outstanding example of this.