Chap 025
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Transcript of Chap 025
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EconomicGrowthChapter 25McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter ObjectivesModern economic growth and increasing living standardsGrowth accountingU.S. productivity growthIs growth desirable and sustainable?
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Economic GrowthIncrease in real GDP or real GDP per capita over some time periodPercentage rate of growthGrowth as a goalArithmetic of growth: Rule of 70Approximatenumber of yearsrequired to doublereal GDP=70annual percentage rateof growth
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Economic GrowthGrowth U.S. real GDP 1950-2005Increased 6 fold 3.5% per year Growth in U.S. real GDP per capitaIncreased more than 3 fold2.3% per yearQualifications Improved products and servicesAdded leisureOther impacts
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Modern Economic GrowthBegan with the Industrial Revolution in late 1700sOngoing increases in living standardsTime for leisureSocial changeDemocracyHuman lifespan doubled
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Modern Economic GrowthBegan in BritainHas spread slowlyStarting date main cause of worldwide differences in living standardsCatching up is possibleLeader countries invent technologyFollower countries adopt technologyCan grow faster
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Real GDP Per CapitaReal GDPReal GDPAverage annualper capita,per capita,growth rate, Country 1960 2004 1960-2004United States$12,892$36,0982.3%United Kingdom10,323 26,7622.2France8,531 26,1682.5 Ireland 5,294 28,9573.9Japan 4,509 24,6613.9Singapore 4,219 29,4044.4Hong Kong 3,322 29,6425.0South Korea 1,458 18,4245.8Figures are in 1996 dollarsSource: Penn World Table
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Modern Economic GrowthGrowth-promoting institutional structuresStrong property rightsPatents and copyrightsEfficient financial institutionsLiteracy and widespread educationFree tradeCompetitive market system
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Ingredients of GrowthSupply factorsIncreases in quantity and quality of natural resources Increases in quality and quantity of human resourcesIncreases in the supply (or stock) of capital goodsImprovements in technology
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Ingredients of GrowthDemand factorHouseholds, businesses, and government must purchase the economys expanding output Efficiency factorMust achieve economic efficiency and full employment
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Production PossibilitiesFrom Chapter 1:Consumer GoodsCapital GoodsaEconomicGrowthbACBDc
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Labor and ProductivitySize of employed labor forceAverage hours of workLaborInputs(hours ofwork)Technological advanceQuantity of capitalEducation and trainingAllocative efficiencyOtherLaborProductivity(average output per hour)RealGDPReal GDP = hours of work x labor productivityx=
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U.S. Economic GrowthAnnual Averages for Five DecadesSource: Bureau of Economic Analysis
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Accounting for GrowthAccounting for Growth of U.S. Real GDP, 1953-2013 (average annual percentage changes)
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Factors affecting productivity growthTechnological advance (40%)Quantity of capital (30%)Education and training (15%)Economies of scale and resource allocation (15%)Accounting for Growth
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Average Test Scores of Eighth Grade Students in Math and Science, Top 10 Countries and the United States, 2003MathematicsScienceAccounting for Growth
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Productivity GrowthAccelerated rate of growth1.4% per year 1973-19952.9% per year 1995-2005Affects real output, real income, and real wagesPay higher wages without lowering profit
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Accelerated Productivity GrowthMicrochip/information technologyNew firms and increasing returnsSources of increasing returnsMore specialized inputsSpreading of development costsSimultaneous consumptionNetwork effectsLearning by doingGlobal competition
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Economic GrowthIs accelerated productivity growth sustainable?Is economic growth desirable and sustainable?The antigrowth viewEnvironmental and resource issuesIn defense of economic growthHigher standard of livingHuman imagination can solve environmental and resource issues
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Economic Growth in ChinaGrowth averages past 25 years:9% annual growth output8% annual growth output per capitaLabor more productiveMore international tradeTransition to market economyJoined WTO 2001Financial system remains weakIncome inequality across geographic areas
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Key Termseconomic growthreal GDP per capitarule of 70modern economic growthleader countriesfollower countriessupply factorsdemand factorefficiency factorlabor productivitylabor-force participation rategrowth accountinginfrastructurehuman capitaleconomies of scaleinformation technologystart-up firmsincreasing returnsnetwork effectslearning by doing
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