Introduction to Economic Growth and Fluctuations Chapter Seven.

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Presentation transcript:

Introduction to Economic Growth and Fluctuations Chapter Seven

The Big Ideas of this Chapter The definition and causes of economic growth. The nature and cause of the business cycle. The nature of unemployment and its measurement. The definition of inflation and how it is measured. The overall effects of inflation on wealth and output.

Big Idea # 1: The Definition and Causes of Economic Growth Economic growth is an increase in real GDP over some time period or an increase in real per capita GDP. An increase in aggregate real GDP is important for something like national prestige or power. Per capita GDP is key if we want to measure living standards in the country.

Economic Growth as a Goal Why is Economic Growth Important? Growth in real total output per person should lead to rising real wages and standards of living. It helps to relieve the burden of scarcity.

Key Question Suppose an economy’s real GDP is $30,000 in Year 1 and $31,200 in Year 2. What is the growth rate of its real GDP? Assume that population was 100 in year 1 and 102 in year 2. What is the growth rate of GDP per capita?

The Rule of 70 It helps to illustrate the importance of small changes in the arithmetic rate of growth. It measures how long it will take a number to double if we are given the percentage rate of increase. Doubling Time = (70 / Percentage Increase)

Brief Clip Key Macroeconomic Goals and the Definition of Economic Growth, Recession, and Depression. Economic Growth

The Main Sources of Economic Growth The Increased inputs of resources results in increased production. And / Or The increased productivity of existing resources results in increased production. What is Productivity? A measure of real output per unit of input.

Comparing Economic Growth Rates: Real GDP 1.Qatar18.70Qatar 2.Mongolia17.30Mongolia 3.Ghana13.50Ghana 4.Panama10.60Panama 5.Turkmenistan9.90Turkmenistan 6.Iraq9.60Iraq 7.China9.20China 8.Papua New Guinea9.00Papua New Guinea # 148 Canada: 2.2% # 172 U.S.: 1.5%

Big Idea # 2: The Business Cycle A Brief Clip : ) The term business cycle refers to alternating rises and declines in the level of economic activity, sometimes extending over several years. They vary in duration and intensity.