ECO2013 MOD.6 Textbook
ECO2013 MOD.6 Textbook ECO2013
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This 3 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 12 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 6 Textbook: Economic Growth (Macroeconomics) Economic Growth: o Made possible by the four supply factors that shift the production possibilities curve outward o Real GDP is more useful to measure the expansion of military potential or political preeminence o An increase in real GDP per capita and real GDP occurring over some time period are used by economists for the definition and measurement of economic growth. o Real GDP divided by the size of the population is considered Real GDP per Capita Best economic growth measurement to compare living standards o The twosupply side elements of real GDP are increases in labor productivity and increases in hours worked o Growth as a goal: Widely held economic goal Expansion of output relative to population rises wages and incomes which promotes higher standards of living. Economies that experience economic growth is able to meet wants of the people and resolve socioeconomic problems. Growth lessens burden of scarcity Modern economic growth: characterized by ongoing and steady increase in living standards that cause a dramatic swell in the standard of living within less than one human lifetime. o Increase in capital per worker is what helps describe the positive growth rate in the U.S during the 1900’s. o Under the rule of 70, if GDP per capita growth rate in the U.S is 2.3%, the standards of living double ever 30.43 years. o A nogrowth policy among industrial nations would limit growth in poor countries due to reduced foreign direct investment and development. Six determinants of economic growth are grouped into 3 categories: One demand factor Four supply factors One efficiency factor Institutional Structures That Promote Modern Economic Growth o Strong property rights o Patents and copyrights o Efficient financial institutions o Literacy and widespread education o Free trade o A competitive market system Laborforce participation rate: % of workingage population actually involved in the labor force Labor productivity: real output per hour of work Growth accounting: used to assess importance of supplyside elements contributing to real GDP changes o System is used by the president’s Council of Economic Advisers o Main category elements: Increases in hours of work Increases in labor productivity Important source of increasing labor productivity is the increase in capital to labor ratio. Economists investigate and assess relative importance of factors contributing to productivity growth due to the importance of increase in labor productivity to economic growth Five factors that appear to explain changes in productivity growth rates: o Technological advance (managerial methods, new forms of business organization, innovative production techniques, etc.) Largest contributor to productivity growth Generated by the discovery of new knowledge Allows resources to be combined in improved ways that increase output Boots productivity and economic growth Promotes investment in new equipment and machinery Often embodies w/in new capital o Amount of capital each worker has to work with Most capital is complementary to labor Infrastructure: highways, bridges, public transit systems, water systems, educational facilities, airports, etc. Promotes private investment in new factories and retail stores Increases in capital are important to productivity growth because of the increase in quantity and quality of capital generate greater production from workers o Education and training Contribute to worker’s stock of human capital Human capital: knowledge and skills that make a worker productive On the job training Formal education Increases labor productivity and earnings 15% of productivity growth comes from investments in people’s education and skills o Economies of scale: reductions in perunit production costs resulting from output level increases. o Resource allocation Workers move from lowproductivity to highproductivity employment 2 Reasons for the Rise in the Average Rate of Productivity Growth o Microchip: bundles transistors on a piece of silicone o Explosion of entrepreneurship and innovation o Startup firms: advanced various aspects of new information technology o Increasing returns: given % increase in inputs used by a firm lead to larger % increase in output produced by the firm. Stronger productivity growth and greater global competition allow economy for higher economic growth rate Efficiency factor: economy must achieve economic efficiency as well as full employment to reach full potential. Competitive market system drives economy towards productive and allocative efficacy Demand Factor: o Households, businesses, and government must expand purchases of goods and services to achieve higher production potential and provide market for new potentially produced output Determinants that directly affect rate of economic growth: o Technological improvements o Increase in supply of capital goods o Total spending on goods and services o Increases in quantity and quality of natural and human resources o Economic efficiency and full employment Negative externalities resulting from industrialization and growth: o Ozone depletion o Global warming o pollution 3
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