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Economic Growth

Economic Growth. Importance. Economic growth benefits a country in many ways Standard of Living Free enterprise economies have the ability to increase real per capita output This allows people to raise their quality of life

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Economic Growth

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  1. Economic Growth

  2. Importance • Economic growth benefits a country in many ways Standard of Living • Free enterprise economies have the ability to increase real per capita output • This allows people to raise their quality of life • Standard of living = quality of life based on the possession of necessities & luxuries

  3. This also increases free time • Allows devotion to family, hobbies, & rec activities

  4. Government Spending • Economic growth enlarges the tax base- incomes & properties that may be taxed • This increases govt revenues • Helps finance number & quality of public services

  5. Domestic Problems • Economic growth creates more jobs & income • This can alleviate social ills • Issues like: poverty, inadequate medical care, lack of opportunities, & economic insecurity can be solved

  6. Helping Other Nations • Economic growth increases American demand for foreign made products • This creates jobs & generates incomes in outside countries • This enables foreign citizens to buy more goods & services from the US (which should create jobs for us)

  7. Factors Influencing Economic Growth Land • The US has an abundance of raw materials • However, in efforts to conserve our natural resources, we turn to international trade • Resources we take for granted- clean air & water, forests, & fertile land- are dwindling • Few of these are renewable resources- resources that can be replenished for future use

  8. Capital • Growing capital favors economic growth • It improves the capitol-to-labor ratio- total capital stock divided by the number of workers in the labor force • High capitol to labor ratio encourages growth by enabling workers to produce more

  9. The key to this is consumer saving • When consumption drops, factors of production are freed to generate new capitol • Not easy • In some countries, people are so poor they must spend all they earn to exist = little capitol = low output

  10. Labor • For a country to grow, it needs a skilled & growing labor force • This typically is dependent on population • Labor shortage is typically offset by hiring workers in other countries

  11. Entrepreneurs • Countries need risk takers who are willing to innovate • Without this, economic growth will become stagnated • Most entrepreneurs prefer minimal govt regulation & a profitable economic system

  12. Productivity & Growth • Productivity is the efficient use of productive inputs to create goods & services • W/out productivity, econ growth is nearly impossible • This is measured by labor productivity- amount of output produced per unit of labor input • Declining productivity = rising prices & unemployment

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