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Ch 17-ECONOMIC GROWTH

Ch 17-ECONOMIC GROWTH. 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER CAPITA. 4 SUPPLY FACTORS 1-quantity & quality of natural resources 2-quantity & quality of human resources 3-supply of capital goods 4-technology. 2 DEMAND FACTORS

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Ch 17-ECONOMIC GROWTH

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  1. Ch 17-ECONOMIC GROWTH 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER CAPITA

  2. 4 SUPPLY FACTORS 1-quantity & quality of natural resources 2-quantity & quality of human resources 3-supply of capital goods 4-technology 2 DEMAND FACTORS 1-AD must increase for production to expand 2-fully employment of resources with productive & allocative efficiency 6 INGREDIENTS OF GROWTH

  3. PRODUCTION POSSIBILITIES ANALYSIS Economic Growth C A b Capital Goods a 0 B D Consumer Goods

  4. GROWTH RECORD OF US • INCREASED 6X SINCE 1950 • BUT GROWTH DOESN’T MEASURE: • 1-QUALITY IMPROVEMENTS • 2-INCREASED LEISURE TIME • 3-ADVERSE EFFECTS ON ENVIRONMENT

  5. SUPPLY DETERMINANTS OF REAL OUTPUT • Size of employed labor force • Average hours of work Labor Inputs (Hours of Work) REAL GDP = X • Technological advance • Quantity of capital • Education and training • Allocative efficiency • Other Labor Productivity (Average Output Per Hour)

  6. HOW TO ACCOUNT FOR GROWTH • More labor input---accounts for 1/3 of total economic growth • Technological advances—account for 26% of US growth since 1929 • Increases of capital—accounts for 18% • Education & training—improves quality of labor • 12% of growth from improved resource allocation & economies of scale

  7. GROWTH IN THE AD-AS MODEL ASLR1 ASLR2 C A Price Level Capital Goods Q1 Q2 B D Real GDP Consumer Goods

  8. ECONOMIC GROWTH IN THE EXTENDED AD – AS MODEL ASLR1 ASLR2 AS2 AS1 Price Level P2 P1 AD2 AD1 o Q1 Q2 Real GDP

  9. OTHER ITEMS THAT HELP ECONOMIC GROWTH • Social/political/cultural environment that are “growth” friendly • Respect for material success • Property rights & legal system • Market system rewards growth

  10. NEW ECONOMY BASED ON PRODUCTIVITY ACCELERATION • Improved standard of living based on labor productivity • 1-microchip technology • 2-new firms & increasing profits • Reasons for increasing returns(profits) • A-more specialized inputs • B-increased consumption • C-spread R & D costs over large output • Keep MC low • D-networking make info goods more valuable

  11. PRODUCTIVITY ACCELERATION PART 2 • 3-Global competition encourages efficiency • 4-Faster growth w/o inflation possible with higher productivity • 5-NRU decreasing from 6%

  12. ANTI-GROWTH GROWTH CAUSES: ENVIRONMENTAL PROBLEMS HIGH STRESS DEAD-END JOBS; BURNOUT PRO-GROWTH GROWTH CAUSES IMPROVEMENTS IN: STANDARD OF LIVING WORKING CONDITIONS LEISURE GETTING RID OF POVERTY MORE OPTIONS TO DEAL WITH ENVIRONMENTAL ISSUES *ONLY LIMIT TO GROWTH IS HUMAN IMAGINATION IS GROWTH DESIRABLE & SUSTAINABLE?

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