ECONOMIC GROWTH Pertemuan 13 Matakuliah : J0114-Teori Ekonomi Tahun : 2009 ECONOMIC GROWTH Pertemuan 13

Ingredients of Growth Supply Factors Increases in Quantity and Quality of Natural Resources Increases in Quality and Quantity of Human Resources Increases in the Supply (or Stock) of Capital Goods Improvements in Technology Bina Nusantara University

Ingredients of Growth Demand Factor Efficiency Factor Households, Businesses, And Government Must Purchase the Economy’s Expanding Output of Goods and Services Efficiency Factor Must Achieve Economic Efficiency and Full Employment Bina Nusantara University

Production Possibilities Production Possibilities Curve C A Economic Growth Capital Goods c b a Bina Nusantara University B D Consumer Goods

Labor and Productivity Real GDP = Hours of Work x Labor Productivity Size of Employed Labor Force Labor Inputs (Hours of Work) Average Hours of Work Real GDP Technological Advance Quantity of Capital Education and Training Allocative Efficiency Other Labor Productivity (Average Output per Hour) Bina Nusantara University

Growth in the AD-AS Model Production Possibilities and Aggregate Supply ASLR1 ASLR2 C A Capital Goods Price Level B D Consumer Goods Real GDP Bina Nusantara University

Growth in the AD-AS Model Production Possibilities and Aggregate Supply Depicting U.S. Growth with AD-AS Model ASLR1 ASLR2 AS2 AS1 Price Level P2 P1 AD2 AD1 Q1 Q2 Bina Nusantara University Real GDP

Accounting for Growth Growth Accounting U.S. Economic Growth Rates U.S. Economic Growth, Annual Averages for Five Decades Real GDP Real GDP Per Capita Average Annual Increase (Percent) Bina Nusantara University Year Source: Bureau of Economic Analysis

Accounting for Growth Factors Underlying Growth Increases in Hours of Work Increases in Labor Productivity Accounting for Growth of U.S. Real GDP, 1953-2011 (Annual Percentage Changes) 1953 Q2 to 1973 Q4 1973 Q4 to 1995 Q2 1995 Q2 to 2001 Q1 2001 Q1 to 2005 Q3 2005 Q3 to 2011 Q4* Item 3.6 1.2 2.4 2.8 1.5 1.3 3.8 1.7 2.1 2.8 -0.6 3.4 3.2 0.8 2.4 Increases in Real GDP Increases in Quantity of Labor Increases in Labor Productivity Bina Nusantara University *Beyond 2005 are Projections Source: Economic Report of the President, 2006

Accounting for Growth Technological Advance Quantity of Capital Infrastructure Education and Training Human Capital Changes in the Educational Attainment of the U.S. Adult Population Percent of Adult Population Bina Nusantara University Source: U.S. Census Bureau Year

Accounting for Growth Economies of Scale Improved Resource Allocation Other Factors Economic Freedom Political Freedom “Growth Friendly” Positive Attitudes Toward Work and Risk Taking Bina Nusantara University

A New Economy? Productivity Acceleration 1.4% Average Growth 1973-1995 Reasons for Acceleration The Microchip and Information Technology New Firms and Increasing Returns Start-Up Firms Bina Nusantara University

A New Economy? Increasing Returns Global Competition More Specialized Inputs Spreading of Development Costs Simultaneous Consumption Network Effects Learning by Doing Global Competition Bina Nusantara University

A New Economy? Implication: More Rapid Growth Skepticism About Permanence What Can We Conclude? More Rapid Long-Run Trend of Productivity Growth Time Will Tell If Growth is Sustainable Bina Nusantara University

A New Economy? Growth Competitiveness Index Finland United States GLOBAL PERSPECTIVE Growth Competitiveness Index Country Ranking Finland United States Sweden Denmark Taiwan Singapore Iceland Switzerland Norway Australia 1 2 3 4 5 6 7 8 9 10 Bina Nusantara University Source: World Economic Forum

Growth Desirability Is Growth Desirable and Sustainable? The Antigrowth View Adverse Spillovers Alternative Quality of Life Opinions In Defense of Economic Growth Higher Standard of Living Poverty Reduction Limited Only by Human Imagination Bina Nusantara University