For most of human history, life was, as philosopher Thomas Hobbes said, “nasty, brutish and short.”
What is economic growth? Before 1750, the norm was chronic hunger, malnutrition, and disease. Even the wealthy had poor diets. Life expectancy was age 30. An average British man in 1750 grew to a height of 5’6 and weighed just 130 pounds.
What is economic growth? No one had ovens, dishwashers, microwaves, or sinks. They didn’t even have indoor kitchens. No electricity. No heat or air conditioning. No lights. No plumbing. No phones. No computers.
What is economic growth? Economic growth is what changed that. In the past 250 years, people ate more and better, grew bigger, worked fewer hours, and lived in greater safety and comfort.
What is economic growth? How did this happen? Technology
What is economic growth? How did this happen? Technology Specialization of labor
What is economic growth? How did this happen? Technology Specialization of labor Human capital
What is economic growth? All of these led to greater productivity – in other words, we could make more with the same resources.
What is economic growth? Think of just the 20 th Century… Airplane Penicillin DNA Computers Nuclear energy Cell phones Internet
What is economic growth? Which one do we mean when we talk about growth? Increases in nominal GDP Increases in real GDP Increases in real per capita GDP
What is economic growth? We can illustrate economic growth: Production possibilities curve AD/AS Model Business Cycle
Production possibilities curve Capital goods Consumer goods New resources move the PPF outward, meaning the economy can have more of both goods.
Aggregate Demand & Supply Model Price Level Real GDP AS 1 AD 1 AS 2 AD 2 Increases in AS and AD cause GDP to go up without inflation.
Business cycle peak trough expansion recovery contraction Long- term upward trend is growth