10.4 Economic Growth Economic Growth & Its Impact “Economic Growth” – increase in total output of goods/services – Can also refer to percentage increase in economy’s total output, measured by real GDP

Economic Growth & Its Impact Consider this hypothetical economy: Economy produces consumer goods (hamburgers) and capital goods (lasers) Initial production is limited to combinations of the 2 goods demonstrated by the curve PPC0 Only by increasing economic resources and/or improving the state of technology to use resources more efficiently can production possibilities be increased (shifting from PPC0 to PPC1) PPC0 PPC1

Production Options and Their Implications If you have 2 countries with the same PPCs, and one focuses more on capital goods (e.g. lasers) whereas the other focuses on consumer goods (e.g. hamburgers), the one that focuses more on capital goods will encourage greater economic growth When you favor current versus future consumption, there is an increasing opportunity cost in terms: sacrificed economic growth

GDP and Growth Rates

Consider the following scenario: Two countries, X and Y, have the same GDP in Year 1, but different growth rates. So, since growth is exponential, one country’s GDP will fall behind the others by an increasing margin GDP

Sources of Economic Growth Main causes of growth: – Stock of economic resources – How productively these resources are used In the last 20 years, Canada’s economy has grown ~35% – Due to an increase in quantity of labour More women in the labour force Population growth (just over 1% annually)

Economic Growth & Productivity Quantity of Capital: – An economy’s supply of capital resources plays a central role in enhancing economic growth If Canadians saved more disposable income for investments, this would increase the amount of capital resources, and push out the PPC

Economic Growth & Productivity Technological Progress Scientific discoveries, advances in production methods, development of new types of products Quality of Labour Labour productivity is not only from investment in capital goods, but investment in human capital through education/training Efficiency in Production Increasing returns to scale mean economic growth Quantity of Natural Resources Canada has rich supplies of natural resources which contributed to past economic growth

Economic Growth & Productivity Social, Political and Legal Factors Growth is enhanced in a society that promotes competition, innovation and entrepreneurship

The Debate over Growth Ironically, there are arguments both for and against economic growth. FOR With rising incomes and output, living standards increase Higher government spending in areas such as health, education and promotion of income equity Mood of optimism and expanding opportunities AGAINST Opportunity cost – a country must devote more of scarce resources Indirect costs of economic growth Insecurity and risks that come with technological progress, not good for traditional methods of lifestyle