Ch 17-ECONOMIC GROWTH

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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 GROWTH2 POSSIBLE DEFINITIONS:1-INCREASE IN REAL GDP 2-INCREASE IN REAL GDP PER CAPITA4 SUPPLY FACTORS1-quantity & quality of natural resources2-quantity & quality of human resources3-supply of capital goods4-technology2 DEMAND FACTORS1-AD must increase for production to expand2-fully employment of resources with productive & allocative efficiency6 INGREDIENTS OF GROWTHPRODUCTION POSSIBILITIES ANALYSISEconomic GrowthCAbCapital Goodsa0BDConsumer GoodsGROWTH RECORD OF US
  • INCREASED 6X SINCE 1950
  • BUT GROWTH DOESN’T MEASURE:
  • 1-QUALITY IMPROVEMENTS
  • 2-INCREASED LEISURE TIME
  • 3-ADVERSE EFFECTS ON ENVIRONMENT
  • SUPPLY DETERMINANTSOF REAL OUTPUT
  • Size of employed labor force
  • Average hours of work
  • LaborInputs(Hoursof Work)REALGDP=X
  • Technological advance
  • Quantity of capital
  • Education and training
  • Allocative efficiency
  • Other
  • LaborProductivity(AverageOutputPer Hour)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
  • GROWTH IN THE AD-AS MODELASLR1ASLR2CAPrice LevelCapital GoodsQ1Q2BDReal GDPConsumer GoodsECONOMIC GROWTH IN THEEXTENDED AD – AS MODELASLR1ASLR2AS2AS1Price LevelP2P1AD2AD1oQ1Q2Real GDPOTHER 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
  • 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
  • PRODUCTIVITY ACCELERATION PART 2
  • 3-Global competition encourages efficiency
  • 4-Faster growth w/o inflation possible with higher productivity
  • 5-NRU decreasing from 6%
  • ANTI-GROWTHGROWTH CAUSES:ENVIRONMENTAL PROBLEMSHIGH STRESSDEAD-END JOBS; BURNOUT PRO-GROWTHGROWTH CAUSES IMPROVEMENTS IN:STANDARD OF LIVINGWORKING CONDITIONSLEISUREGETTING RID OF POVERTYMORE OPTIONS TO DEAL WITH ENVIRONMENTAL ISSUES*ONLY LIMIT TO GROWTH IS HUMAN IMAGINATIONIS GROWTH DESIRABLE & SUSTAINABLE?
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