Chapter 25: Economic Growth

Economic growth

An increase in real GDP occurring over some time period OR An increase in real GDP per capita occurring over some time period

Real GDP per capita

Dividing real GDP by size of population

Rule of 70

We can find the number of years it will take for some measure to double, given its annual percentage increase, by dividing that percentage increase into the number 70

Modern economic growth

Sustained and ongoing increases in living standards that can cause dramatic increases in the standard of living within less than a single human lifetime

Leader countries

Rich countries with real GDP per capita that grows by 2-3% per year

Follower countries

Can grow much faster because they can simply adopt existing technologies from rich leader countries

Supply factors

Changes in the physical and technical agents of production

quantity of labor

Increases in ________ + increases in labor productivity cause economic growth.

Demand factor

To achieve the higher production potential created by the supply factors, households, businesses, and government must purchase the economy’s expanding output of goods and services

Efficiency factor

To reach its full production potential, an economy must achieve economic efficiency as well as full employment

Economic growth

An increase in real GDP occurring over some time period OR An increase in real GDP per capita occurring over some time period

Real GDP per capita

Dividing real GDP by size of population

Rule of 70

We can find the number of years it will take for some measure to double, given its annual percentage increase, by dividing that percentage increase into the number 70

Modern economic growth

Sustained and ongoing increases in living standards that can cause dramatic increases in the standard of living within less than a single human lifetime

Leader countries

Rich countries with real GDP per capita that grows by 2-3% per year

Follower countries

Can grow much faster because they can simply adopt existing technologies from rich leader countries

Supply factors

Changes in the physical and technical agents of production

Demand factor

To achieve the higher production potential created by the supply factors, households, businesses, and government must purchase the economys expanding output of goods and services

Efficiency factor

To reach its full production potential, an economy must achieve economic efficiency as well as full employment

Labor productivity

Measured as real output per hour of work

Labor-force participation rate

Percentage of the working-age population actually in the labor force

Growth accounting

System to assess the relative importance of the supply-side elements that contribute to changes in real GDP

Infrastructure

Highways and bridges, public transit systems, wastewater treatment facilities, water systems, airports, educational facilities, and so on

Human capital

Knowledge and skills that make a worker productive

Economies of scale

Reductions in per-unit production costs that result from increases in output levels

Information technology

Combination of the computer, fiber-optic cable, wireless technology, and the Internet

Increasing returns

A given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces

Network effects

Increases in the value of the product to each user, including existing users, as the total number of users rises

Learning by doing

Firms that produce new products or pioneer new ways of doing business experience increasing returns

Con

Negative externalities, doesnt solve sociological problems, unsustainable

Pro

Better living standards, improved infrastructure, reduced poverty

Labor productivity

Measured as real output per hour of work

Labor-force participation rate

Percentage of the working-age population actually in the labor force

Growth accounting

System to assess the relative importance of the supply-side elements that contribute to changes in real GDP

Infrastructure

Highways and bridges, public transit systems, wastewater treatment facilities, water systems, airports, educational facilities, and so on

Human capital

Knowledge and skills that make a worker productive

Economies of scale

Reductions in per-unit production costs that result from increases in output levels

Information technology

Combination of the computer, fiber-optic cable, wireless technology, and the Internet

Increasing returns

A given percentage increase in the amount of inputs a firm uses leads to an even larger percentage increase in the amount of output the firm produces

Network effects

Increases in the value of the product to each user, including existing users, as the total number of users rises

Learning by doing

Firms that produce new products or pioneer new ways of doing business experience increasing returns