Economic Growth
Business, Computers,
& Information
Technology
Unit 6 Chapter
25
Goal #1
Promote Economic Growth
Growth lessens the burden of scarcity. How
does an economy experience growth?
3
Real GDP per capita =
Real GDP
Population
5
What is the cause of GDP per Capita growth rate to be
higher than the U.S. population growth rate?
7
Graphing Growth
1. Production Possibilities Curve
2. Business Cycle
Peak
Robots
Level of real output
Peak
Peak
Trough
Trough
Time
Pizzas
3. AS/AD
Price
Level
LRAS LRAS1
AS
AS1
PLe
PL1
AD
Qf
Q1
AD1
GDPR
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Structures that Promote Growth
1. Property Rights – Individuals will invest when they
2.
3.
4.
5.
6.
believe they will profit from their investment, and that
their property will not be stolen.
Patents and Copyrights give a financial incentive to
invent and create.
Efficient Financial Institutions channel savings from
HHs to businesses, entrepreneurs, and inventors.
Education for inventors and work-force to develop and
implement new technologies.
Free Trade enables countries to specialize in goods and
services with a comparative advantage. New ideas spread.
Competition in a market system – Prices and
profits signal what and how much to produce.
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DETERMINANTS
OF GROWTH
12
Determinants of Growth
1. SUPPLY FACTORS – Physical and technological factors.
a. Increase in quantity & quality of Natural Resources.
Comes from “mother nature.”
Ex: Marcellus
Shale natural gas
discovery estimated
to create 1 million
new jobs by 2025,
lower
manufacturing
production costs,
and spur economic
growth.
Determinants of Growth
1. SUPPLY FACTORS – cont’d.
b. Increase in quantity & quality of Human Resources.
Accounts for 15% of productive growth. Ex: College
degrees, vocational training, OJT, Internships, etc.
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17
Determinants of Growth
1. SUPPLY FACTORS – cont’d.
c. Increase in quantity of Capital Goods. Any
human-made resource used to create other goods
and services. Accounts for 30% of productive
growth.
Ex: Tools, tractors, machinery, buildings, factories, etc.
Publically owned capital is called Infrastructure.
Ex: Highways and bridges, water systems, airports, waste
treatment facilities, educational facilities, transit systems,
etc.
Determinants of Growth
1. SUPPLY FACTORS – cont’d.
d. Improvement in Technology. New and better
goods and services or new and better ways of
producing or distributing them. Business invest
in Research & Development and have incentives
to innovate. Accounts for 40% of productive growth.
Ex: computers, cell phones, GPS, conveyor belts, etc.
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Determinants of Growth
2. DEMAND FACTOR – HHs, businesses and government
must purchase economy’s expanding output of goods and
services.
The economy cannot achieve higher production potential without
increasing spending!
3. EFFICIENCY FACTOR – An economy must achieve
full productive and allocative efficiency, and full employment
to reach full production potential.
Robots
All 3 factors must be
present to achieve
economic growth.
Pizzas
23
Determinants of Growth
1. Supply factors
2. Demand Factors
3. Efficiency Factor
Of the 3 factors of growth, which ones can move an economy
from point X to point A?
Demand, Efficiency
Robots
B
Which ones can shift the PPC outward?
Supply
Which ones can move an economy from
point A to point B?
Demand, Efficiency
A
X
Pizzas
25
LABOR AND FACTOR
PRODUCTIVITY
27
Labor and Productivity
Real GDP = Hours of work
x labor productivity
An increase in either will lead
to economic growth.
Example: In Year 1 Ashna has 10 workers, each working 2,000
hours per year. Labor Input = 20,000 hours
Labor Productivity = $10. What is Real GDP? $200,000
In Year 2 Ashna has 12 workers. Labor input = 24,000 hours
Labor Productivity = $10.40. What is Real GDP? $249,600
What was Ashna’s rate of Economic Growth?
249,600-200,000 x 100 =
200,000
24.8%
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Labor and Productivity
Source: Organization for Economic Co-operation and Development
30
EFFECTS OF GROWTH
31
Effects of Growth
1. Time to Double
Rule of 70 calculates number of years it will take
for some measure of growth to double.
Approximate
# Years to =
Double
70
Annual % rate of growth
Ex: At a 3% rate of growth, how long will it take the U.S.
GDP to double?
Approximate
70 =
=
# Years to
3%
Double
23 years
Effects of Growth
2. Higher Living Standards
Improved products and services, more education,
better healthcare, added leisure (avg work week =
35 hours), improved infrastructure, more police
and fire protection, improved work conditions,
reduced poverty.
3. Negative externalities (Antigrowth View)
• Environmental waste threatens ecological
systems.
• Stressful work conditions due to work pace
and rapidly changing technologies cause
physical and mental health problems.
• Growth does not solve poverty; redistribution
of income and wealth.
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