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Chap 025
Chap 025
Economic Growth
McGraw-Hill/Irwin
Chapter Objectives
Modern economic growth and increasing living standards Growth accounting U.S. productivity growth Is growth desirable and sustainable?
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Economic Growth
Increase in real GDP or real GDP per capita over some time period Percentage rate of growth Growth as a goal Arithmetic of growth: Rule of 70
Approximate number of years required to double real GDP
70
Economic Growth
Growth U.S. real GDP 1950-2005
Increased 6 fold 3.5% per year
Qualifications
Improved products and services Added leisure Other impacts
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United States United Kingdom France Ireland Japan Singapore Hong Kong South Korea
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Ingredients of Growth
Supply factors
Increases in quantity and quality of natural resources Increases in quality and quantity of human resources Increases in the supply (or stock) of capital goods Improvements in technology
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Ingredients of Growth
Demand factor
Households, businesses, and government must purchase the economys expanding output
Efficiency factor
Must achieve economic efficiency and full employment
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Production Possibilities
From Chapter 1:
C
Capital Goods
Economic Growth
c
a b
Consumer Goods
D
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Technological advance Quantity of capital Education and training Allocative efficiency Other
=
Labor Productivity (average output per hour)
Real GDP
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1980-1989
1990-1999
2000-2005
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Year
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Science
1 Singapore 2 Taiwan 3 South Korea 4 Hong Kong 5 Estonia 6 Japan 7 Hungary 8 Netherlands 9 United States 10 Australia 578 571 558 556 552 552 543 536 527 527
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Productivity Growth
Accelerated rate of growth
1.4% per year 1973-1995 2.9% per year 1995-2005
Affects real output, real income, and real wages Pay higher wages without lowering profit
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Global competition
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Economic Growth
Is accelerated productivity growth sustainable? Is economic growth desirable and sustainable? The antigrowth view
Environmental and resource issues
Labor more productive More international trade Transition to market economy Joined WTO 2001 Financial system remains weak Income inequality across geographic areas
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Key Terms
economic growth real GDP per capita rule of 70 modern economic growth leader countries follower countries supply factors demand factor efficiency factor labor productivity labor-force participation rate growth accounting infrastructure human capital economies of scale information technology start-up firms increasing returns network effects learning by doing
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