Download Economic Growth Notes

ECONOMIC GROWTH
Why is economic growth important?
 Results in rising wages and higher standards of living for citizens (measured as
increases in real gross domestic product (GDP) per capita). Economic growth allows a
society to increase its consumption of goods and services.
Describe the difference between economic expansion and long-run economic growth.
 Economic expansion – increasing the pace of economic activity to move an economy
back toward its potential. (i.e. economy recovers from an economic downturn)
 Long Run Economic Growth is an increase in an economy’s productive capacity.
Describe the difference between growth that occurs as a result of an increase in inputs and
growth that occurs as a result of an increase in output per input.
 Acquisition of more resources/inputs, more goods and services can be produced.
 Existing resources/inputs are used more efficiency, which increases output per input,
or productivity.
What indicators and models can we use to evaluate economic growth and the standard of
living in different countries?
 Indicators – Real GDP per capita, Output Gap, Total Productivity, Capacity
Utiliziation
 Long Run Aggregate Supply, Production Possibility Frontier
Compare the Characteristics of a More Economically Developed Country and Less
Developed Country.
MDC
LDC
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High Standard of Living
Strong high-technology diversified economy
High per capita GDP
Industrialized
Some combination of Representative Government
Free Market Economic Model
General lack of corruption
Source of Wealth: Imperialism, Colonialism,
Globalization, Productivity
Examples (Japan, Canada, US, Australia, New
Zealand, Europe, South Africa and Israel.
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Low Standards of Living
High Income Inequality
Poor Health Care
Inadequate Education
Limited Life Expectancy
Low levels of Productivity
High Population Growth Rates (Dependency
Burdens)
Unemployment, Underemployment
Small Industrial Sector, Outdated Technology
Migration from Rural to Urban
Lack of financial markets
Colonial Past
Limited Technology, Infrastructure, and
Social/Political Institutions
Examples (South America, Africa, Middle East,
and Southeast Asia)
With most countries not being fully developed, and considered an LDC, what aspects allow
for a higher level of development (i.e. China and Haiti)?
 Resource Endowment
 Geography, Climate
 Language and Religion
 Extent of Education
 Size of Private Sector
 Role of Government
 Culture
RICH NATION/POOR NATION
You are secret agents assigned to find out if a country is rich or poor. From the information provided below, identify each of the
five countries listed. Jot down the country’s name opposite each bold-face heading. Rank the five countries you have identified in
order, with the richest country placed “1” and the poorest country at “5.”
Country A:__Argentina_____________ Rank:_3__
Country B:____Japan_______________ Rank: __2_
Size: Three-tenths the size of the United States
Size: About the size of California
Population: 40,301,927
Population: 127,433,494
Natural Resources: Rich resources with fertile land and
minerals such as lead, zinc, tin, copper, iron ore, oil, and
uranium.
Natural Resources: Fish, no mineral resources
Country C:__Nigeria________________ Rank:_5__
Country D:___Russia_______________ Rank:__4_
Size: Twice the size of California
Size: 1.8 times the size of the United States
Population: Large population of 135,031,164
Population: 141,377,752
Natural Resources: Vast resources including oil, tin, iron ore,
coal, limestone, lead, zinc and natural gas.
Natural Resources: Vast resources with major deposits of oil,
natural gas, coal, many strategic minerals, vast timber supplies.
Country E:___Singapore________________ Rank:_1__
Size: 3.5 times larger than Washington D.C.
Population: 4,553,009
Natural Resources: Fish, deepwater port
What are the factors contributing to Long-Term Economic Growth?
1. High Investment in Human and Physical Capital
 Higher productivity
i. Capital per worker – better tools to work with and infrastructure
ii. Human capital per worker – Collective experience and education
iii. Natural Resource per worker – Minerals, Energy, Rivers, Trees, and Fisheries
iv. Technology – the way resources are combined to produce
 Foreign Direct Investment – capital investment owned and operated by a foreign entity
 Foreign Portfolio Investment – capital investment is financed with foreign money, but operate
by domestic residents
2. Economic Freedom
 Lower Taxes and Decrease Government Regulation
 Sound Monetary Policy and Financial System
 Property Rights
 Decentralized Decision Making
 Economic Enterprise
3. Strong incentives to save, invest, and increase productivity
4. Property Rights – strong property rights ensure that private investment and innovation are properly
rewarded, which provides the incentive for future productive economic activity
5. Competitive Markets – competitive markets and flexible prices ensure that markets can adjust, and
free trade opens industries to additional competition, which leads to increases in efficiency and
productivity.
6. Efficient Financial Institutions – transform the deposits of savers into loans for borrowers, which are
used to invest in capital, technology, and infrastructure – all key ingredients for growth. Research
finds that countries with well-developed financial markets allocate resources more effectively, a key
to economic growth.
7. Other Factors – Low inflation, political stability, free trade, health/nutrition, research/development,
population growth.
Goal:
Focus on attainment:
Short term changes:
How will these changes lead to success in reaching goal?
ECONOMIC GROWTH
Why is economic growth important?
Describe the difference between economic expansion and long-run economic growth.
Describe the difference between growth that occurs as a result of an increase in inputs and
growth that occurs as a result of an increase in output per input.
What indicators and models can we use to evaluate economic growth and the standard of
living in different countries?
Compare the Characteristics of a More Economically Developed Country and Less
Developed Country.
MDC
LDC
With most countries not being fully developed, and considered an LDC, what aspects allow
for a higher level of development (i.e. China and Haiti)?
RICH NATION/POOR NATION
You are secret agents assigned to find out if a country is rich or poor. From the information provided below, identify each of the
five countries listed. Jot down the country’s name opposite each bold-face heading. Rank the five countries you have identified in
order, with the richest country placed “1” and the poorest country at “5.”
Country A:______________________ Rank:____
Country B:_______________________ Rank: ____
Size: Three-tenths the size of the United States
Size: About the size of California
Population: 40,301,927
Population: 127,433,494
Natural Resources: Rich resources with fertile land and
minerals such as lead, zinc, tin, copper, iron ore, oil, and
uranium.
Natural Resources: Fish, no mineral resources
Country C:________________________ Rank:____
Country D:_________________________ Rank:____
Size: Twice the size of California
Size: 1.8 times the size of the United States
Population: Large population of 135,031,164
Population: 141,377,752
Natural Resources: Vast resources including oil, tin, iron ore,
coal, limestone, lead, zinc and natural gas.
Natural Resources: Vast resources with major deposits of oil,
natural gas, coal, many strategic minerals, vast timber supplies.
Country E:___________________________ Rank:____
Size: 3.5 times larger than Washington D.C.
Population: 4,553,009
Natural Resources: Fish, deepwater port
What are the factors contributing to Long-Term Economic Growth?
Goal:
Focus on attainment:
Short term changes:
How will these changes lead to success in reaching goal?