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Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
17
C HAPTE R
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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ECONOMIC
GROWTH
Copyright McGraw-Hill/Irwin, 2005
GROWTH ECONOMICS
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Supply Factors
• Increases in the Quantity &
Quality of Natural Resources
• Increases in the Quantity &
Quality of Human Resources
• Increases in the Supply (or
Stock) of Capital Goods
• Improvements in Technology
Copyright McGraw-Hill/Irwin, 2005
GROWTH ECONOMICS
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Demand Factor
• Households, Businesses, and
Government Must Purchase the
Economy’s Expanded Output
Efficiency Factor
• The Economy Must Achieve
Economic Efficiency as well as
Full Employment
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PRODUCTION POSSIBILITIES ANALYSIS
Growth Economics
Production
Possibilities Analysis
Economic
Growth
C
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Capital Goods
Supply Determinants
of Real Output
A
b
a
0
B
D
Consumer Goods
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PRODUCTION POSSIBILITIES ANALYSIS
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Growth and Production
Possibilities
Labor and Productivity
Hours
Labor
X
Real GDP =
of Work
Productivity
Hours of Work
Labor-Force Participation
Rate
Labor Productivity
Copyright McGraw-Hill/Irwin, 2005
SUPPLY DETERMINANTS
OF REAL OUTPUT
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
•Size of
employed
labor force
•Average hours
of work
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Labor
Inputs
(Hours
of Work)
X
•Technological
advance
Labor
•Quantity of capital Productivity
•Education and
(Average
training
Output
•Allocative
Per Hour)
efficiency
•Other
Copyright McGraw-Hill/Irwin, 2005
=
REAL
GDP
GROWTH IN THE AD-AS MODEL
Growth Economics
Production
Possibilities Analysis
Production Possibilities and
Aggregate Supply
Supply Determinants
of Real Output
Growth in the AD-AS
Model
Extended AD-AS Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Copyright McGraw-Hill/Irwin, 2005
GROWTH IN THE AD-AS MODEL
Growth Economics
Production
Possibilities Analysis
ASLR1 ASLR2
C
Supply Determinants
of Real Output
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Price Level
U.S. Economic
Growth Rates
A
Capital Goods
Growth in the AD-AS
Model
Key Terms
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B
D
Consumer Goods
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Q1 Q2
Real GDP
ECONOMIC GROWTH IN THE
EXTENDED AD – AS MODEL
ASLR1
Growth Economics
Production
Possibilities Analysis
AS2
Supply Determinants
of Real Output
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
AS1
Price Level
Growth in the AD-AS
Model
ASLR2
P2
P1
AD2
Key Terms
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AD1
o
Q1
Real GDP
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Q2
U.S. ECONOMIC GROWTH RATES
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Average Annual Increase (Percent)
Growth Economics
U.S. Economic Growth,
Annual Averages for Five Decades
5
4
3
2
1
0
1950-1959 1960-1969 1970-1979 1980-1989 1990-1999
Real GDP
Copyright McGraw-Hill/Irwin, 2005
Real GDP Per Capita
ACCOUNTING FOR GROWTH
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Growth Accounting
Labor Inputs versus
Productivity
Technological Advance
Quantity of Capital
Infrastructure
Education and Training
Human Capital
Copyright McGraw-Hill/Irwin, 2005
ACCOUNTING FOR GROWTH
Growth Economics
Production
Possibilities Analysis
Accounting for Growth of U.S. Output,
1960-2008
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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1960 Q2
to 1973 Q4
1973 Q4
to 1990 Q3
2002 Q3
1990 Q3
to 2002 Q3 to 2008 Q4*
Increase in Real
GDP
4.2
2.9
2.9
3.2
Increase in
quantity of labor
1.6
1.6
0.9
1.4
Increase in labor
productivity
2.6
1.3
2.0
1.8
*Rates beyond 2002 are projections
Source: Economic Report of the President, 2003
Copyright McGraw-Hill/Irwin, 2005
ACCOUNTING FOR GROWTH
Growth Economics
Changes in the Educational Attainment
of the U.S. Adult Population
100
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Percent of U.S. Population
Production
Possibilities Analysis
80
60
40
20
0
1950
1960
College Graduates or More
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1970
1980
1990
2000
High School Graduates or More
Source: U.S. Census Bureau
ACCOUNTING FOR GROWTH
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Economies of Scale
Improved Resource
Allocation
Other Factors
Key Terms
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GLOBAL PERSPECTIVE
Average Test Scores, 8th. Grade, 1999
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Mathematics
Rank
Score
1 Singapore
604
2 South Korea
587
3 Taiwan
585
4 Hong Kong(China) 582
5 Japan
579
6 Belgium
558
7 Netherlands
540
8 Slovak Republic 534
9 Hungary
532
10 Canada
531
19 United States
502
Rank
Science
1 Taiwan
2 Singapore
3 Hungary
4 Japan
5 South Korea
6 Netherlands
7 Australia
8 Czech Republic
9 United Kingdom
10 Finland
18United States
Score
569
568
552
550
549
545
540
539
538
535
515
Source: Third International Math and Science Study
Copyright McGraw-Hill/Irwin, 2005
PRODUCTIVITY ACCELERATION:
A NEW ECONOMY?
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Reasons for the
Productivity Acceleration
•Microchip and
Information Technology
•New Firms and
Increasing Returns
•Start-Up Firms
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PRODUCTIVITY ACCELERATION:
A NEW ECONOMY?
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Sources of Increasing Returns
• More Specialized Inputs
• Spreading of Development
Costs
• Simultaneous Consumption
• Network Effects
• Learning by Doing
Global Competition
Copyright McGraw-Hill/Irwin, 2005
PRODUCTIVITY ACCELERATION:
A NEW ECONOMY?
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Macroeconomic Implications
• More Rapid Economic
Growth
• Low Natural Rate of
Unemployment
• Growing Tax Revenues
Skepticism About the New
Economy
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GLOBAL PERSPECTIVE
Growth Competitiveness Ranking 2002
Rank
Growth Economics
Production
Possibilities Analysis
United States
Supply Determinants
of Real Output
Finland
Growth in the AD-AS
Model
Taiwan
U.S. Economic
Growth Rates
Singapore
Accounting for
Growth
Sweden
Productivity
Acceleration: A New
Economy?
Key Terms
Switzerland
Australia
Canada
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Norway
Denmark
1
2
3
4
5
6
7
8
9
10
Source: World Economic Forum
Copyright McGraw-Hill/Irwin, 2005
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
IS GROWTH DESIRABLE
AND SUSTAINABLE?
The Antigrowth View
In Defense of
Economic Growth
Key Terms
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Copyright McGraw-Hill/Irwin, 2005
economic growth
supply factors
demand factor
efficiency factor
labor productivity
labor-force participation
rate
Copyright McGraw-Hill/Irwin, Inc. 2005
growth accounting
infrastructure
human capital
economies of scale
New Economy
information technology
start-up firms
increasing returns
network effects
learning by doing
BACK
END
Chapter 18 Next...
Growth Economics
Production
Possibilities Analysis
Supply Determinants
of Real Output
Growth in the AD-AS
Model
U.S. Economic
Growth Rates
Accounting for
Growth
Productivity
Acceleration: A New
Economy?
Key Terms
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Deficits,
Surpluses
and the
Public Debt
Copyright McGraw-Hill/Irwin, 2005