Ch. 18: Economic Growth Gr. 12 Economics M. Nicholson

Economic Growth Increase in the total output of goods & services Real GDP adjusted for inflation  whole economy’s growth  capacity Real GDP per capita  individual’s growth  living standards

Production Possibility Curve

Capital vs. Consumer Goods Saws vs. Bread Saws  short term pain, but long term gain Bread  short & long term no pain or gain Capital  economic growth in future, but less consumer goods in present Exponential growth  builds on itself Rule of 72  72  % growth rate = double

Economic Growth In Canada 1870 – 1914  $ $3917 per capita GDP (Pre-World War 1) 1914 – 1945  $ $7291 (Interwar Period) 1945 – 1993  $ $19,084 (Postwar Period)

Sources of Economic Growth Labour Productivity  real output / hours 1. Quantity of capital 2. Technological progress 3. Quality of labour 4. Efficiency in production 5. Quality of natural resources 6. Social and political factors

The Debate Over Growth Arguments for Economic Growth 1. Living standards 2. Social improvements 3. Psychological benefits

The Debate Over Growth cont’d Arguments Against Economic Growth 1. Opportunity cost of growth 2. Environmental costs 3. Social costs

Economic Development World Bank  international bank for reconstruction and development High-Income Countries  Per capita GNP $7911 US or more Middle Income Countries  $636 - $7910 US per capita GNP Low-Income Countries  $0 - $635 US per capita GNP

Poverty and Wealth

Points of Comparison Per capita income  $1 vs. $21, 000 Health & social indicators  62 yrs vs. 77yrs Energy consumption  H.I. 14 x > L.I. Asian nations (e.g. China)  massive growth  narrowing gap with rich Many sub-Saharan & Latin American countries  further behind the rich

The Dynamics of Development Per capita income ↑  living standards ↑ Vicious circle of poverty  low per capita income  low investment in capital & human resources  labour-intensive production (rapid population growth)  low productivity  low income

Strategies for development Political & economic stability Investing in human & capital resources  need good gov’t  higher savings Trade liberalization Foreign aid Population control