Presentation on theme: "Chapter 16. Identify the general sources of economic growth. Identify specific institutional factors that promote economic growth. Comprehend why."— Presentation transcript:
Country can produce more As GDP per capita rises ◦ Better air and water ◦ More leisure ◦ Longer lifespans ◦ Improved diet ◦ Better quality of life
Rule of 70– if a variable grows at a rate of x percent per year, 70/x will approximate the years required for the variable to double GDP Growth Rate Years for GDP to Double 10%7 7%10 5%14 2%35 1%70 Small changes in the growth rate of GDP have a big impact over time.
Major sources of economic growth are ◦ Gains from trade ◦ Entrepreneurial discovery ◦ Investment in physical and human capital ◦ Favorable institutional environment
Trade moves items from people who value them less to people who value them more Trade allows for ◦ Division of labor ◦ Specialization ◦ Mass production More trade means more output and growth
Technological advancement and innovation allows us to produce more Entrepreneurs take risks ◦ Some ideas are made of win ◦ Many ideas fail The market ◦ Rewards good ideas ◦ Puts a stop to resource draining projects
Do robots and machines steal jobs from people or reduce employment?
Physical capital – machines Human capital – knowledge and skills
Institutions — legal, regulatory, and social constraints that impact property rights and enforcement of contracts Government’s role is very important ◦ Encourage productive activities ◦ Discourage unproductive ones
Legal system ◦ Secure property rights ◦ Rule of law ◦ Evenhanded enforcement of contracts ◦ Political stability Competitive markets ◦ Firms succeed by pleasing consumers ◦ Firms that do not are driven from the market Stable money and prices ◦ Low/no inflation ◦ Encourages investment
Minimal regulation ◦ Regulations make starting a business difficult ◦ Regulations often have unintended consequences Avoidance of high tax rates ◦ High taxes reduce efficient use of resources ◦ High taxes increase underground activity and, labor force dropout Open international trade ◦ Avoid tariffs ◦ Avoid quotas
1. Population growth ◦ Thomas Malthus, the dismal scientist, 1798 ◦ People produce, not just consume 2. Natural resources ◦ Institutions more important than natural resources ◦ Natural resources do not guarantee growth Japan, Hong Kong, Singapore Nigeria, Venezuela, Russia
3. Foreign aid ◦ Agricultural and monetary donations ◦ Aid can have unintended consequences Politically distributed Disrupt markets 4. Climate and location ◦ Far from major markets, tropical climate ◦ Institutions more important than location
Identify the general sources of economic growth. Identify specific institutional factors that promote economic growth. Comprehend why income levels and growth rates vary among countries.