1. Economic Growth
Econ 11/30

2. Warm Up

3. Measuring Economic Growth
Real GDP (or GDP adjusted to remove distortions from inflation) is best used in the short run
Real GDP per capita: dollar amount of real GDP produced on a per person basis. Best used for the long run.
If the population grows faster than real GDP, the average amount of output per person falls
If the population grows slower than real GDP, there will be more goods and services available for everyone

4. Economic Growth Historically
Almost no growth in real GDP per capita between
: annual rate was 2.9 percent
: fell to 2.2 percent
Now GDP is growing stabily

5. Importance of Economic Growth
Standard of Living: quality of life based on the possession of necessities and luxuries that make life easier/more enjoyable
A free enterprise system (like the US) allows people to increase their free time
Government Spending: economic growth benefits gov spending because it increases the tax base (incomes and businesses than can be taxed)
Domestic Problems: economic growth increases more jobs and incomes, thus helping social ills like poverty, inadequate medical care, and inequality of opportunity
Can also help with unemployment which reduces the number of resources on welfare

6. Importance of Economic Growth
4. Helping other Nations: Economic growth increases Americans demand for foreign-made products, which helps increase jobs and generate income to the countries
US consumers also benefit by getting an increase variety and price for a product
5. Global Role Model: Many nations emerging have been able to copy the US model of a free market system and enjoy success due to it

7. Factors that Influence Economic Growth
Land: The US has an abundance of natural resources and therefore does not have to rely on international trade for most raw materials
US is also a leader in renewable resources, specifically renewable energy
Capital: high capital-to-labor ratio leads to economic growth because workers an abundance of materials and supply
Capital-to-labor ratio: the total capital stock divided by the number of workers in the labor force
Labor: for an economy to grow it needs a skilled and growing labor force.
The US labor force is increasingly more educated due to access and trends of people attending college

8. Factors that Influence Economic Growth
Entrepreneurs: Entrepreneurs cause change which leads to economic growth. They take risks to innovate and create which leads to better and more production (in contrast look at the Dark Ages)
In the US the biggest area of innovation is the internet and technology.
The US education system is trying to move to one that breeds entrepreneurs, not factory workers

9. Productivity and Growth
Productivity: the efficient use of productive inputs to create goods and services
Without productivity—economic growth is nearly impossible
When productivity is low, the entire economy suffers. It can lead to a rise in the price level, then and increase in foreign goods, and finally unemployment in domestic industries
When productivity grows, the entire economy benefits. Prices tend to stay low, employment at home increases to keep up with demand.

10. Why are Some Countries Rich and Others are Poor?