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ECO2013 CH. 26 Lecture

by: itswingo

ECO2013 CH. 26 Lecture ECO2013


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About this Document

- Economic Growth - Modern Economic Growth - Institutional Structures of Growth - Determinants of Growth - Production Possibility - Etc. Etc.
Principles of Macroeconomics
Professor Sammie Young
Class Notes
Macroeconomics, Economics, economic, growth, economicgrowth, institutionalstructures, Eco2013, Econ, fsw, floridasouthwestern




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This 7 page Class Notes was uploaded by itswingo on Tuesday September 27, 2016. The Class Notes belongs to ECO2013 at Florida SouthWestern State College taught by Professor Sammie Young in Fall 2016. Since its upload, it has received 26 views. For similar materials see Principles of Macroeconomics in Economics at Florida SouthWestern State College.


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Date Created: 09/27/16
Chapter 26 Lecture: Economic Growth     Economic Growth: 1. Increase in real gross domestic product (GDP) over some time period 2. Increase in real gross domestic product GDP per capita* over some time period o Typically measured as a percentage rate of growth on a quarterly or yearly basis o During different periods of recession, the growth rate will be negative instead of  being positive. st nd o Circumstances determine the use of 1  or 2  measure of determining growth o Real GDP is more useful for country to country comparisons o Growth in GDP is an ‘economic goal’  Approx. # of years required to double real GDP = 70 / annual % rate of  growth  GDP per capita allows comparison of a variety of sized countries o Growth in U.S. real GDP in 1950­2012 increased more than 6 fold by 3.1% per  year. o Growth in U.S in real GDP per capita increased more than 3 fold at 2% per year o The numbers do not fully account for product and service improvements and  understate economic growth’s wellbeing; added leisure, and environmental and  quality of life impacts. Real GDP and Real GDP per Capita in the U.S. since 1950 o Real GDP per Capita increased at a slower rate than Real GDP due to an increase  in population. o The rate of increase in Real GDP per Capita was about ½ of Real GDP     Modern Economic Growth: o British birthplace o Slow to spread o Characterized by sustained and ongoing increases in living standards o Began with Industrial Revolution in late 1700’s o Dramatically affected political, social, and cultural arrangements  Countries tend to lead towards Democratic government  Ordinary people experience leisure time and arts  Double in human life­spans o Leader countries – invent technology o Follower countries – adopt technology o Pooer nations must rely on wealthier nation’s support o Shows real GDP per Capita in 1960 and 2010 and average annual growth grade  during the time span of 1960­2010. o Vast differences in growth rates 2 o Illustrates differences in standards of living across nations o Due to the different timing of nations experiencing modern economic growth, the  standards of living vary.     Institutional Structures of Growth: o Promote and sustain economic growth o Ensure nations ability to sustain growth o Strong property rights are essential for people to feel safe from theft or government  for investments o Patent and copyright laws allow society to have constant flow of innovated  technology and ideas o Literacy and widespread education o Free trade o Competitive market system 3     Determinants of Growth o Relate to physical ability of economy for expansion o Any increase or improvements in supply factors will increase GDP o Supply factors:  Increase quantity and quality of:  natural resources  human resources  increase supply (or stock) of:  capital goods  improvements in technology o Demand factor:  Households, businesses, and government must expand purchases of goods and services to achieve highest production potential o Efficiency factor:  Involves the issue that government must achieve economic efficacy and full  employment  Must use resources in less costly way to maximize people’s wellbeing     Production Possibilities: o 4 supply factors that shift possibilities curve outward are what makes economic  growth possible (I.E., A/B to C/D) o When demand and efficiency factor move the economy from points A and C to the  optimal output which is recognized by point B is when economic growth is visible. 4 o Point C = the real output when it happens to fall below what should’ve been if the  economy had been operating at its full employment (I.E., recession 2007­2009)     Labor and Productivity: o Real GDP = hours of work x labor productivity o Society can increase real income and output by… 1. Increasing resource input 2. Raise input productivity     U.S. Economic Growth o Both increases in quantity of labor and increases in labor productivity are important  sources of economic growth 5     Accounting for Growth: o 5 factors, when combined, explain changes in productivity growth rate  Technological advance (40%)  Generated by discovery of new knowledge  Quantity of capital (30%)  More and better planned and equipment call for more productivity  Education and training (15%)  Economies of scale and resource allocation (15%)  Investment in human capital is in important meanings of increasing  labor productivity  Economies of scale are reductions of per unit reduction costs resulting  from increases in output levels  Improved resource allocation means workers move from low to high  productivity employment     Productivity Growth: o Measured by changes in index of labor productivity o Average rate:  1.5% per year 1973­1995  2.4% per year 1995­2012 o Real output, real income, and real wages are linked to productivity growth increase o Pay higher wages without lowering profit o Reasons for increased productivity growth:  Explosion of entrepreneurship and development  Microchip/information technology  Start­up firms taking advantages of increasing returns and economies of scale  Sources of increasing returns:  More specialized inputs  Spreading development costs  Simultaneous consumption  Network effects  Learning by doing  Global competition was fueled by the collapse of socialist economies key  factor of increasing rate of productivity growth     Economic Growth: o Is it desirable and sustainable??  Industrialization and growth are said to come with environmental issues (I.E.,  pollution, climate changes, ozone depletion, etc.)  Little compelling evidence of change in sociological problems (I.E.,  homelessness, poverty, discrimination, etc.) 6  Higher standard of living  Benefit of human imagination to solve issues o Growth is the path to greater material abundance o Increases leisure time o Higher standards of living o Expansion and application of human knowledge     Can Economic Growth Survive Population Decline? o  Nations shift from agriculture to industry and fertility levels and birth rates decline  and labor force shrinks and population grows. o Inverse Dependency ratio:  Living standards will have to decline if productivity does not keep up with  ratio  Social security issues  Less innovation  Slower productivity growth 7


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