Economic Growth  Economic growth occurs when a society is able to produce more things that people want and improve its members’ standard of living. People with a higher standard of living have more income and are able to buy things that might make life more comfortable and satisfying. Examples?

Economic Growth  How can societies produce more when their natural resources are limited and not likely to increase? 1. Must increase productivity to experience economic growth 2. Must increase output (products) per each unit of resources they use, or their input. 3. Productivity = output of product input of resources

Productivity and Growth How can an economy increase its productivity and promote growth?  Capital Investment: using some of an economy’s profits to buy the following 1. New machines and equipment 2. To research and implement new technologies 3. To improve the education of the workforce

Productivity and Growth  Example: printing press company 3 examples using the same printing company. 1. If a printing company has one printing press it can double its production by investing in a second printing press. The cost may be higher but the increase in production will be much greater, leading to increased productivity.

Productivity and Growth 2. If the new printing press is faster and cheaper to operate, it represents an improvement in technology and will increase productivity even more. 3. If society has not invested in educational resources such as public schools, universities, and technical schools to improve its human capital, the new technology will be worthless.

Productivity and Growth  For the past 200yrs. societies in Europe and North America have been investing in new technology, capital equipment, and education which, has increased their economic growth and standard of living.  Today nations like China and India have just begun this process of capital investment.

Productivity and Growth  Making Capital Investments 1. We can measure an entire society’s average level of investment, productivity and economic growth, but these averages actually reflect thousands of decisions made by individual producers. 2. Imagine, for example, that you own a bakery. When you begin earning profits, you have choices to make. Should you spend your profits on a new car for your own personal use, put the money in a saving account, or invest the profits in your business?

Productivity and Growth (Continue the example) If you decide to invest in your business, should you hire an extra salesperson, buy new equipment to speed production, or pay for your baker to take classes on how to make French pastry? If you want your business to grow- to increase productivity and profits in your future what should you do?

Productivity and Growth  Answer: Invest in capital goods (new equipment) or your human capital (more training for your baker)

Productivity and Growth  Using the PPC to illustrate economic growth  What does a PPC illustrate?  When productivity increases, a business or society can produce more goods with the same resources.  If this improvement in productivity applies to both products, the shape of the PPC curve remains the same, but the curve shifts outward to show increased production of both goods.

Using the PPC to show economic growth Corn Soybeans e a b c d

Show what you know 1. The U.S. has one of the most productive workforces in the world. Give some reasons for its productivity, and tell what effect its productivity has on our standard of living. 2. The U.S. has laws that allow inventors and writers to profit from their ideas and that prevents other people from copying these ideas. Explain how these laws help promote economic growth. 3. Imagine that you have been hired as a business consultant for a construction company in China. Explain 3 suggestions you would give the company’s president to help his/her business growth. 4. Demonstrate the growth from question 3 by creating a PPC.