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Lecture5 - Econ1016 GROWTH
Lecture5 - Econ1016 GROWTH
Lecture5 - Econ1016 GROWTH
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LEARNING OBJECTIVES
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PRODUCTION AND GROWTH
A countrys standard of living depends on its
ability to produce goods and services.
Within a country there are large changes in
the standard of living over time.
Over the past 100 years in Australia, average
income, as measured by real GDP per
person, has grown by about 1.6 per cent per
year.
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ECONOMIC GROWTH AROUND
THE WORLD
Living standards, as measured by real GDP
per person, vary significantly among nations.
The poorest countries have average levels of
income that have not been seen in Australia
for many decades.
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ECONOMIC GROWTH AROUND
THE WORLD
Annual growth rates that seem small become
large when compounded for many years.
Compounding refers to the accumulation of a
growth rate over a period of time.
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The variety of growth experiences across
countries
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The variety of growth experiences across
countries
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World Bank GDP per capita map
http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries?display
=map
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PRODUCTIVITY:
ITS ROLE AND DETERMINANTS
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How productivity is determined
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How productivity is determined
The factors of production include:
physical capital
human capital
natural resources
technological knowledge.
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HOW PRODUCTIVITY IS
DETERMINED
Physical capital is a produced factor of
production.
It is an input into the production process that in
the past was an output from the production
process.
It is the stock of equipment and structures that
are used to produce goods and services; for
example, the tools used to build or repair cars,
furniture, office buildings or schools.
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HOW PRODUCTIVITY IS
DETERMINED
Human capital
the economists term for the knowledge and skills
that workers acquire through education, training
and experience.
Like physical capital, human capital affects a
nations ability to produce goods and services.
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HOW PRODUCTIVITY IS
DETERMINED
Natural resources are inputs used in
production that are provided by nature.
Renewable resources include forests.
Non-renewable resources include petroleum and
coal.
Natural resources can be important but are not
necessary for an economy to be highly productive
in producing goods and services.
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HOW PRODUCTIVITY IS
DETERMINED
Technological knowledge
This is societys understanding of the best ways
to produce goods and services.
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The production function
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The production function
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The production function
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The production function
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The production function
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ECONOMIC GROWTH AND
PUBLIC POLICY
Government policies that raise productivity
and living standards:
encouraging saving and investment
encouraging investment from abroad
encouraging education, health and nutrition
establishing secure property rights and maintain
political stability
promoting free trade
promoting research and development.
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The importance of saving and investment
One way to raise future productivity is to invest
more current resources in the production of
capital.
As the stock of capital rises, the extra output
produced from an additional unit of capital falls;
this property is called diminishing returns.
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The importance of saving and investment
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Growth and investment
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Diminishing returns and the catch-up effect
The catch-up effect refers to the property
whereby countries that start off poor tend to
grow more rapidly than countries that start off
rich.
For example, Japan and Australia devoted a
similar share of GDP to investment but Japans
economic growth rate was more than double
Australias.
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Investment from abroad
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Education
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Education
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Health and nutrition
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Property rights and political stability
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Free trade
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Free trade
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Research and development
The advance of technological knowledge has led
to higher standards of living.
Most technological advance comes from private
research by firms and individual inventors.
Government can encourage the development of new
technologies through research grants, tax breaks and
the patent system.
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Population growth
Economists and other social scientists have long
debated how population growth affects a society.
Population growth interacts with other factors of
production:
stretching natural resources
diluting the capital stock
promoting technological progress.
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SUMMARY
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SUMMARY
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SUMMARY
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