Economic Growth. Growth and the business cycle Short-run economic growth and the business cycle.

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Presentation transcript:

Economic Growth

Growth and the business cycle Short-run economic growth and the business cycle

Growth and the business cycle Actual and potential economic growth

v x y O Growth through making a fuller use of resources Food Clothing Production inside the production possibility curve

O Growth in potential output Food Clothing Now

O Food Clothing Now Growth in potential output 5 years’ time

O Food Clothing Growth in potential and actual output

O Food Clothing Growth in potential and actual output x y

Growth and the business cycle The business cycle

O National output Time Potential output Actual output The business cycle

O National output Time Potential output Actual output Trend output The business cycle

Growth and the business cycle The business cycle in practice The business cycle in practice

Annual growth rate (%) UK Growth rates in selected industrial countries

Annual growth rate (%) UK Growth rates in selected industrial countries

Annual growth rate (%) UK France Growth rates in selected industrial countries

Annual growth rate (%) UK France Growth rates in selected industrial countries

Annual growth rate (%) UK France Germany Growth rates in selected industrial countries

Annual growth rate (%) UK France Germany Growth rates in selected industrial countries

Annual growth rate (%) UK France USA Germany Growth rates in selected industrial countries

Annual growth rate (%) UK France USA Germany Growth rates in selected industrial countries

Annual growth rate (%) UK France USA Germany Japan Growth rates in selected industrial countries

Annual growth rate (%) UK France USA Germany Japan Growth rates in selected industrial countries

Long-term economic growth

UK economic growth over the decades

UK GDP at market prices (1995=100)

Average annual percentage growth rate in GDP per person employed

Output per person employed in 2000 relative to that in 1961 Output per person employed in 2000 relative to that in 1961

Productivity in selected countries, 1999 (UK = 100)

Long-term economic growth A simple model of economic growth

Economic growth Long-term growth: to steady-state income Long-term growth: to steady-state income

K0K0 Depreciation (D) Investment (I) Steady-state output Capital stock (K) Output (Y), Investment (I), Depreciation (D) K1K1 Y1Y1 Output (Y) g Y0Y0 b I0I0 D0D0 O c f a

Economic growth Long-term growth: an increase in the saving rate Long-term growth: an increase in the saving rate

Capital stock (K) K1K1 K2K2 Y2Y2 Y1Y1 Y D I2I2 I1I1 g m n h Output (Y), Investment (I), Depreciation (D) f Effect of an increase in the rate of saving and investment

Saving rate (%) Consumption O 100 a b An optimum saving rate

Saving rate (%) Consumption C* s* O 100 a m b An optimum saving rate

Economic growth Long-term growth: technological progress Long-term growth: technological progress

Capital stock (K) K1K1 K2K2 Y2Y2 Y2Y2 D I2I2 I1I1 g p n h Output (Y), Investment (I), Depreciation (D) Effect of embodied technological progress Y1Y1 Y1Y1 f

Effect of technological progress on growth rates Lower rate of technological progress Higher rate of technological progress Time Output

Effect of an increase in the saving rate, with a given rate of technological progress Time Output Steady-state growth path 1 Actual growth path Slope determined by rate of technological progress

Steady-state growth path 2 Effect of an increase in the saving rate, with a given rate of technological progress Time Output t1t1 Steady-state growth path 1 Rate of saving increases at time t 1 Actual growth path

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