1. Ch 17-ECONOMIC GROWTH 2 POSSIBLE DEFINITIONS: 1-INCREASE IN REAL GDP
2-INCREASE IN REAL GDP PER CAPITA

2. 6 INGREDIENTS OF GROWTH 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
1-AD must increase for production to expand
2-fully employment of resources with productive & allocative efficiency

3. Economic Growth PRODUCTION POSSIBILITIES ANALYSIS Capital Goods b aB D
Consumer Goods

4. GROWTH RECORD OF US INCREASED 6X SINCE 1950
BUT GROWTH DOESN’T MEASURE:
1-QUALITY IMPROVEMENTS
2-INCREASED LEISURE TIME
3-ADVERSE EFFECTS ON ENVIRONMENT

5. SUPPLY DETERMINANTS OF REAL OUTPUT
Size of employed labor force
Average hours of work
Labor
Inputs
(Hours
of Work)
REAL
GDP = X
Technological advance
Quantity of capital
Education and training
Allocative efficiency
Other
Labor
Productivity
(Average
Output
Per Hour)

6. 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

7. GROWTH IN THE AD-AS MODEL
ASLR1
ASLR2 C A
Price Level
Capital Goods B D Q1 Q2
Consumer Goods
Real GDP

8. ECONOMIC GROWTH IN THE EXTENDED AD – AS MODEL
ASLR1
ASLR2
AS2
AS1
Price Level P2 P1
AD2
AD1 o Q1 Q2
Real GDP

9. OTHER 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

10. 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

11. PRODUCTIVITY ACCELERATION PART 2
3-Global competition encourages efficiency
4-Faster growth w/o inflation possible with higher productivity
5-NRU decreasing from 6%

12. IS GROWTH DESIRABLE & SUSTAINABLE?
ANTI-GROWTH
GROWTH CAUSES:
ENVIRONMENTAL PROBLEMS
HIGH STRESS
DEAD-END JOBS; BURNOUT
PRO-GROWTH
GROWTH CAUSES IMPROVEMENTS IN:
STANDARD OF LIVING
WORKING CONDITIONS
LEISURE
GETTING RID OF POVERTY
MORE OPTIONS TO DEAL WITH ENVIRONMENTAL ISSUES
*ONLY LIMIT TO GROWTH IS HUMAN IMAGINATION