Chapter 17- Economic Growth and Productivity 12/4/2018 Chapter 17- Economic Growth and Productivity Objective – Students will be able to answer questions regarding how countries achieve economic growth. SECTION 1 © 2001 by Prentice Hall, Inc.

Economic Growth Defined Sustained increase in Real GDP over time. Sustained increase in Real GDP per Capita over time.

Why Grow? Growth leads to greater prosperity for society. Lessens the burden of scarcity. Increases the general level of well-being.

Conditions for Growth Willingness to sacrifice current consumption in order to grow Saving Trade

Physical Capital Tools, machinery, factories, infrastructure Physical Capital is the product of Investment. Investment is sensitive to interest rates and expected rates of return. It takes capital to make capital. Capital must be maintained.

Technology & Productivity Research and development, innovation and invention yield increases in available technology. More technology in the hands of workers increases productivity. Productivity is output per worker. More Productivity = Economic Growth.

Human Capital People are a country’s most important resource. Therefore human capital must be developed. Education Access to technology

Growth Illustrated LRAS SRAS PL P AD YF GDPR

Growth Illustrated LRAS PL SRAS P AD YF GDPR

Growth Illustrated or . .  Capital Goods  PPC PPC1  Consumer Goods

Hindrances to Growth Economic and Political Instability High inflationary expectations Lack of Savings Excess current consumption Failure to maintain existing capital Crowding Out of Investment Government deficits & debt increasing long term interest rates! Trade Barriers

Section 1 Assessment Describe what factors lead to an increase in long run economic growth. 2. Graph long run economic growth on a AD/AS graph as well as a PPC.

Summary: In a paragraph, describe what you have learned today.