Ch 7 Ecological Economics: From an Empty World to a Full World (through Growth) ECN101 Prof. Grob

How much am I worth?

Expectations Understand how growth rates are calculated Introduction to GDP Use the rule of 72 Describe factors influencing growth How do we know we’re close to a “full world”?

Rule of 72: The power of growth rates How many years does it take to double the rate of growth? Years to double = 72. Growth rate

Economic growth

What is the GDP? Gross Domestic Product is the market value of all final goods and services produced within a country in a given year

What are the components of GDP? Personal consumption expenditures Gross private domestic investments Government purchases of goods &services Net exports (exports minus imports) GDP=C + I + G + X-M

Rates of Economic Growth Rate of economic growth is the percent change in economic activity from one year to the next. Many people look at the GDP, but there are other measures out there too. Are new products in fact a reflection of our economic progress?

Calculating rates of economic growth Rate of growth= Y2 Real GDP – Y1 Real GDP Y1 Real GDP

Calculating the Real GDP Real GDP= Nominal GDP X 100 GDP deflator

How fast can the economy grow? Mainstream view: 2.5% growth per year Some even say 5% may be sustainable Several nations have been able to double their GDP in less than 28 years What are the implications for use of natural resources? What would ecological economists say?

What factors affect economic growth? Availability of resources! Initial levels of input (land, labor, capital) Allocation of resources Productivity Capital Investments (human & physical) Government policies Business policies Consumer sentiment

Economies have different starting points Natural resources Physical capital Human capital Economic efficiency

How economies grow Natural resources: shift inputs toward production Human capital: provide incentives to work Physical capital: provide investment incentives Increase efficiency in production

Natural resources are the “first pillar of economic growth” “Gifts” “usable in production” Renewable vs. nonrenewable Will technology provide alternatives?

Physical capital Computers, machinery, tools help us to produce goods and services Investment in physical capital can achieve productivity increases It involves and opportunity cost: future consumption for forgone consumption today Government is a source of physical capital in that roads, bridges, airports and utilities comprise an infrastructure for human activity including production and that could increase efficiency

Human Capital Improve knowledge, experience and skills of the workforce Teach people to adapt to changing situations and to innovate Formal training On the job experience

Economic Efficiency Producing more with fewer inputs Invention and innovation Market structures can influence efficiency as we will learn Opening markets abroad (freeing resources abroad) Import methods or “reverse engineer”

What can government do to increase growth? What should government do to increase growth?

How do we know if we’re close to a full world?