Gross Domestic Product Chapter 12 Section 3 Economic Growth

Gross Domestic Product Most of us would agree that as far as material possession go, Americans are much better today than they were 100 years ago. Economic growth has allowed successive generations to have more and better goods and services than their parents.

Gross Domestic Product Long-term increases in Real GDP allow an entire society to improve its quality of life, especially its standard of living.

Gross Domestic Product Measuring Economic Growth: – Basic measure of a nation’s economic growth rate is the percentage change of Real GDP over a given period of time. – GDP & Population Growth: Over time a nation’s population tends to grow. Real GDP, if it is to satisfy the needs of a nation’s growing population, must keep up with the growth rate of the population.

Gross Domestic Product This is one reason that economists prefer a measure that takes population growth into account. – Real GDP per Capita – Real GDP divided by the population of a country.

Gross Domestic Product – AustraliaIndia GDP - $ 390 Billion380 Billion

Gross Domestic Product – AustraliaIndia GDP - $ 390 Billion380 Billion Population – 20 million1 Billion

Gross Domestic Product – AustraliaIndia GDP - $ 390 Billion380 Billion Population – 20 million1 Billion Real GDP per capita – $ 18,350.00$

Gross Domestic Product GDP & Quality of Life: – We can use GDP to measure standard of living, which relates to material goods. – We cannot use it as a complete measure of people’s quality of life. – It excludes many factors that affect the quality of life, such as the state of the environment, the level of stress that individuals feel in their daily lives. – GDP does give us a clue as to the wealth of a country.

Gross Domestic Product Physical capital {the equipment used to produce goods and services} makes an important contribution to the output of an economy. With more physical capital, each worker can be more efficient and productive. This is called Labor Productivity

Gross Domestic Product Capital Deepening – process of increasing the amount of capital per worker. Education, experience, and skills contributes to the output. Better training and more experienced workers can produce more output per hour of work.

Gross Domestic Product Saving and Investment – Output can be used for consumption by consumers or for investment by firms. Income that is not used for consumption is called savings.

Gross Domestic Product Population, Government, and Trade: – Population growth does not necessarily preclude (prevent) economic growth. – Population has to grow and the supply of capital has to increase for capital deepening to occur.

Gross Domestic Product Government can affect the process of capital deepening in several ways. 1. Raise Taxes – households have less $ to spend (affect savings). Government invests in the Infrastructure, investments will increase. 2. Foreign Trade Result in the value of goods a country imports is higher than the value of goods that it exports. Countries want a balance in foreign trade.

Gross Domestic Product 3. Technological Progress * New inventions or new ways to perform a task. * Technological progress – an increase in efficiency gained by producing more output without using more inputs.

Gross Domestic Product In most modern economies, the amount of physical and human capital changes all the time. So does the quantity and quality of labor and the technology used to produce goods and services. These interconnected variables work together to economic growth.

Gross Domestic Product Causes of Technological Progress. 1. Scientific Research New and improved production 2. Innovation Successful products or ideas improve output Patents 3. Scale of the Market Larger markets provide more incentives for innovation

Gross Domestic Product 4. Education and Experience 5. Natural Resource use Can create a need for new technology. Can turn previously useless raw materials into usable resources.