McConnell 21e IPPT Ch28(1) - LAWRENCE MCNEIL, PH.D. · 2019. 11. 28. · Copyright © 2018...

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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 28 Economic Growth

Transcript of McConnell 21e IPPT Ch28(1) - LAWRENCE MCNEIL, PH.D. · 2019. 11. 28. · Copyright © 2018...

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    Chapter 28Economic Growth

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    Economic Growth• IncreaseinrealGDPorrealGDPpercapitaoversometimeperiod• Percentagerateofgrowth• Growthasagoal• Arithmeticofgrowth:Ruleof70

    ApproximatenumberofyearsrequiredtodoublerealGDP

    =70

    annualpercentagerateofgrowth

    LO1

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    Economic Growth Continued• GrowthinU.S.realGDP1950-2015• Increasedmorethansevenfold• 3.1%peryear

    • GrowthinU.S.realGDPpercapita• Increasedmorethanthreefold• Atroughly2%peryear

    • Qualifications• Improvedproductsandservices• Addedleisure• Otherimpacts

    LO1

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    Economic Growth ConcludedRealGDPandRealGDPperCapita

    LO1

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    Modern Economic Growth• BeganwiththeIndustrialRevolutioninlate1700s• Ongoingincreasesinlivingstandards• Timeforleisure• Socialchange• Democracy• Humanlifespandoubled

    LO2

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    Modern Economic Growth Continued• BeganinBritain• Hasspreadslowly• Startingdatemaincauseofworldwidedifferencesinlivingstandards• Catchingupispossible• Leadercountriesinventtechnology• Followercountriesadopttechnology• Cangrowfaster

    LO2

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    Comparative Modern Economic Growth

    RealGDP RealGDP Averageannualpercapita, percapita, growthrate,

    Country 1960 2010 1960-2010

    UnitedStates $14,766 $41,365 2.1%UnitedKingdom11,25734,268 2.2France 9,347 31,299 2.4Ireland 6,666 34,877 3.3Japan 5,472 31,477 3.5Singapore 4,149 55,862 5.2HongKong 3,849 38,865 4.6SouthKorea 1,765 26,609 5.4Note:GDPfiguresforallcountriesaremeasuredin“internationaldollars”ofequalvaluetoU.S.dollarsin2005.Source:PennWorldTableversion6.3,pwt.econ.upenn.edu.UsedbypermissionoftheCenterforInternationalComparisonsattheUniversityofPennsylvania

    LO2

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    Modern Economic Growth Concluded

    LO2

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    Institutional Structures of Growth• Strongpropertyrights• Patentsandcopyrights• Efficientfinancialinstitutions• Literacyandwidespreadeducation• Freetrade• Competitivemarketsystem

    LO2

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    Determinants of Growth• Supplyfactors• Increasesinquantityandqualityofnaturalresources• Increasesinqualityandquantityofhumanresources• Increasesinthesupply(orstock)ofcapitalgoods• Improvementsintechnology

    LO3

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    Determinants of Growth Continued• Demandfactor• Households,businesses,andgovernmentmustpurchasetheeconomy’sexpandingoutput

    • Efficiencyfactor•Mustachieveeconomicefficiencyandfullemployment

    LO3

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    a

    EconomicGrowth

    b

    DB

    A

    C

    ConsumerGoods

    CapitalG

    oods

    c

    FromChapter1:Production Possibilities

    LO3

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    Labor and Productivity

    •Sizeofemployedlaborforce

    •Averagehoursofwork

    LaborInputs(hoursofwork)

    •Technologicaladvance

    •Quantityofcapital

    •Educationandtraining

    •Allocativeefficiency

    •Other

    LaborProductivity(averageoutputperhour)

    RealGDP

    RealGDP=hoursofwork× laborproductivity

    ×=

    LO3

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    U.S. Economic Growth

    Item1953Q2

    To1973Q41973Q4

    To1995Q21995Q2

    To2007Q32007Q3

    To2015Q3

    Projected2015Q3

    To2026Q4

    IncreaseinrealGDP 3.6 2.8 3.2 1.2 2.4

    Increaseinquantityoflabor 1.1 1.3 0.5 0.1 0.3

    Increaseinlaborproductivity 2.5 1.5 2.7 1.1 2.1

    AccountingfortheGrowthofU.S.RealGDP,1953-2015,PlusProjectionfrom2015-2026

    (AverageAnnualPercentageChanges)

    Source: DerivedfromEconomicReportofthePresident,2008,p.45;EconomicReportofthePresident,2016,p.113;BureauofEconomicAnalysis;andBureauofLaborStatistics.

    LO3

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    Accounting for Growth• Factorsaffectingproductivitygrowth• Technologicaladvance(40%)• Quantityofcapital(30%)• Educationandtraining(15%)• Economiesofscaleandresourceallocation(15%)

    LO4

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    Accounting for Growth Continued

    AverageTestScoresofEighthGradeStudentsinMathandScience,2011

    Mathematics Science

    LO4

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    Productivity Growth• Averagerateofgrowth• 1.5%peryear1973-1995• 2.6%peryear1995-2010• 0.4%peryear2010-2015• Affectsrealoutput,realincome,andrealwages• Payhigherwageswithoutloweringprofit

    LO5

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    Productivity Growth Continued•Microchipandinformationtechnology• Start-upfirmsandincreasingreturns• Sourcesofincreasingreturns•Morespecializedinputs• Spreadingofdevelopmentcosts• Simultaneousconsumption• Networkeffects• Learningbydoing

    • GlobalcompetitionLO5

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    Productivity Growth Concluded

    LO5

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    Productivity Slowdown• Highdebtlevels• Overcapacity• FreeInternetApps• Slowdownintechnologicalprogress

    LO5

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    Global Competitiveness Index

    LO6

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    Is Growth Desirable?• Theantigrowthview• Environmentalandresourceissues• Indefenseofeconomicgrowth• Higherstandardofliving• Humanimaginationcansolveenvironmentalandresourceissues

    LO6

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    Economic Growth Defense• Growthisthepathtogreatermaterialabundance• Resultsinhigherstandardsofliving• Increasesleisuretime• Allowsfortheexpansionandapplicationofhumanknowledge

    LO6

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    Can Economic Growth Survive Population Decline?• Asnationsindustrialize,theireconomiesshiftfromagriculturetoindustry• Fertilityratesfall• Decreaseinpopulation• Eachgenerationsmallerthantheonebefore

    • Inversedependencyratio• Socialsecurityissues• Innovationandproductivity


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McConnell 21e IPPT Ch27(1) · 2019. 11. 28. · Nominal GDP vs. Real GDP •GDP is a dollar measure of production •Using dollar values creates problems •Nominal GDP •Based on

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