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17 - 1Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
ECONOMIC
GROWTH AND THE NEW
ECONOMY
17C H A P T E R
17 - 2Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
• 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
GROWTH ECONOMICSSupply Factors
17 - 3Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
•Households, Businesses, and
Government Must Purchase the
Economy’s Expanded Output
GROWTH ECONOMICSDemand Factor
Efficiency Factor
•The Economy Must Achieve
Economic Efficiency as well as
Full-Employment
17 - 4Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
PRODUCTION POSSIBILITIES ANALYSIS
Economic Growth
A
B
C
D
a
b
Cap
ital
Go
od
s
Consumer Goods
17 - 5Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
PRODUCTION POSSIBILITIES ANALYSIS
Growth and Production PossibilitiesLabor and Productivity
Worker-HoursLabor-Force Participation RateLabor Productivity
Real GDP =WorkerHours
XLabor
Productivity
17 - 6Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
•Size of employed labor force
•Average hours of work
•Technological advance
•Quantity of capital•Education and training
•Allocative efficiency•Other
REALGDP
SUPPLY DETERMINANTSOF REAL OUTPUT
LaborInputs(Hours
of Work)
LaborProductivity
(AverageOutput
Per Hour)
X =
17 - 7Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
GROWTH IN THE AD-AS MODEL
Production Possibilities and Aggregate Supply
Extending the AD-AS Model
17 - 8Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
GROWTH IN THE AD-AS MODEL
A
B
C
D
Ca
pit
al G
oo
ds
Consumer Goods
Pri
ce
Lev
el
Real GDP
ASLR1 ASLR2
Q1 Q2
17 - 9Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
ECONOMIC GROWTH IN THEEXTENDED AD – AS MODEL
Pri
ce L
evel
Real GDP
o
P1
AS2
ASLR1
AD2
Q1
ASLR2
Q2
AD1
AS1
P2
17 - 10Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
U.S. Economic Growth,Annual Averages for Five Decades
1950-1959 1960-1969 1970-1979 1980-1989 1990-1999
U.S. ECONOMIC GROWTH RATES
5
4
3
2
1
0
Real GDP Real GDP Per Capita
Av
era
ge
An
nu
al I
nc
reas
e (
Pe
rce
nt)
17 - 11Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
ACCOUNTING FOR GROWTH
Inputs versus Productivity
Quantity of Labor
Technological Advance
Quantity of Capital
Infrastructure
Education and Training
Human Capital
17 - 12Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
ACCOUNTING FOR GROWTH
Increase in quantity of labor 33%
Increase in labor productivity 67%
Technological advance 26%
Quantity of capital 18%
Education and training 11%
Economies of scale 6%
Improved resource
allocation 6%
100%
Sources of Growth of U.S. Output, 1929-2000
17 - 13Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
Changes in the Educational Attainment of the U.S. Adult Population
1950 1960 1970 1980 1990 2000
100
80
60
40
20
0
College Graduates or More High School Graduates or More
ACCOUNTING FOR GROWTH
Source: U.S. Census Bureau
Pe
rce
nt
of
U.S
. Po
pu
lati
on
17 - 14Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
ACCOUNTING FOR GROWTH
Economies of Scale
Improved Resource
Allocation
Other Factors
17 - 15Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
PRODUCTIVITY GROWTHAND THE NEW ECONOMY Characteristics of the New
Economy•Microchip and
Information Technology•New Firms and
Increasing Returns•Start-Up Firms
17 - 16Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
PRODUCTIVITY GROWTHAND THE NEW ECONOMY
Sources of Increasing Returns• More Specialized Inputs• Spreading of Development
Costs• Simultaneous Consumption• Network Effects• Learning by Doing
Global Competition
17 - 17Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
PRODUCTIVITY GROWTHAND THE NEW ECONOMY
Macroeconomic Implications• Faster Noninflationary
Growth• Low Natural Rate of
Unemployment• Growing Tax Revenues
Skepticism About the New
Economy
17 - 18Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
GLOBAL PERSPECTIVEGrowth Competitiveness Ranking 2000
Source: World Economic Forum
12345678910
United States
Singapore
Luxembourg
Netherlands
Ireland
Finland
Canada
Hong Kong, China
United Kingdom
Switzerland
Rank
17 - 19Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
IS GROWTH DESIRABLEAND SUSTAINABLE?
The Antigrowth View
In Defense of
Economic Growth
Chapter Conclusions
economic growth
supply factors
demand factor
efficiency factor
labor productivity
labor-force participation rate
infrastructurehuman capitaleconomies of scaleNew Economyinformation technologystart-up firmsincreasing returnsnetwork effectslearning by doing
ENDBACKCopyright McGraw-Hill/Irwin 2002
17 - 21Copyright McGraw-Hill/Irwin, 2002
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 Growth in the New Economy
Key Terms
PreviousSlide
NextSlide
EndShow
Deficits,Surpluses
and thePublic Debt
Chapter 18 Next...