1. Section 7 - Module
Economic Growth

2. Module 37 What is GDP? What is GDP per Capita?
What’s the difference between Real GDP and Nominal GDP?

3. Module 37
GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M). Here is a description of each GDP component: C (consumption) is normally the largest GDP component in the economy, consisting of private (household final consumption expenditure) in the economy.
The total GDP divided by the amount of people in a country.
Taking the nominal gdp and accounting for inflation to get real GDP

4. Module 37 Comparing Economies Across Time and Space
Real GDP per capita
Real GDP divided by the population size
Focus on this bc it isolates the effect of changes in the pop.
Serves as a summary measure of a country’s economic progress over time
Figure while China and India have higher growth rates, they are still just now reaching the level of the US in the year 1908

5. Module 37
Question: If there are 2000 people in a country and the total Real GDP is $4 million - what is the GDP per capita?

6. Module 37

7. Module 37
Growth Rates
Mathematical formula that tells us how long it takes real GDP per capita - or other variables - to double.
Number of years for variable to double = 70/Annual Growth rate of variable
Rule of 70 only applied to positive growth rate
Ex. If the GDP per capita grows at 1% per ear, it will take 70 years to double.

8. Module 37
Based on the chart and the Rule of 70, how long will it take _____ to double?
China
India
Ireland US
Why can’t we use the rule of 70 on Zimbabwe?
If the growth rate of a country changes from 3 to 1 percent, how many more years will it take to double?

9. Module 37 Sources of Long-Run Growth Labor Productivity -
Output per worker, or output per hour
Output per worker = Real GDP / # of people working
Rising productivity = #1 reason for long-run economic growth
Why?
Rate of employment growth is near the rate of population growth.
Real GDP per capita must be the result of increased output per worker.

10. Module 37 Explaining Growth in Productivity Physical Capital
Manufactured goods used to produce other goods and services
Buildings, machinery
Human Capital
Improvement in labor created by the education and knowledge in the workforce
Increased education = increased human capital
Technology
Improves labor productivity
More tech = more production

11. Module 38 Accounting for Growth: The Aggregate Production Function
Shows how productivity depends on the quantities of physical capital per worker and human capital per worker as well as technology.
Allows economists to see the effects of the 3 factors on overall productivity
Formula on page 376
2. Which of the following does not affect the level of productivity?
Education of workforce
Size of labor force
Technology improvements
Educational improvements
Low literacy rates
Increase in capital stock

12. Module 38 Human Capital Physical Capital Technology Capital Stock
Education of workforce
Physical Capital
Tools people use
Technology
Advances = more productivity
Capital Stock
Term on test - referring to overall capital (human and physical)
Increased capital stock = shifts Productivity Curve UPWARD

13. Module 38 Technological Progress and Productivity Growth
Tech progress shifts curve upward
Change in years shows progress of tech on productivity
Shift from A to C = increased savings = increased investment
Shift from C to D = improvements in tech, education, healthcare, etc.

14. Module 38 - Key Terms Diminishing Returns to Physical Capital
Holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to smaller increase in productivity
Growth Accounting
Estimate the contribution of each major factor in the aggregate production function to economic growth.
Total Factor Productivity
Is the amount of output that can be achieved with a given amount of factor inputs.

15. Module 39 Why Growth Rates Differ
Capital, Tech, and Growth Differences
Adding to Physical Capital
Increased stock of physical capital at rapid rates = high rates of investment spending
Where does the money come from?
Savings = investment!
Increased Savings = increased investment = higher growth of physical capital

16. Why growth rates differ - part 2
Adding to Human Capital
Higher education levels - higher human capital
Ex. East asia has higher increases in education than Latin America
See table 39.1 for side by side comparison

17. Module 39 Why Growth Rates Differ - Part 3 Technological progress
Advance of tech is key behind economic growth
R&D - Research and Development
Spending to create new tech and prep for practical use

18. Module 39 The Role of Government in Promoting Economic Growth
Governments and Physical Capital
Infrastructure
Roads, power lines, ports, information networks and other physical capital that provide a foundation for economic activity
Govt & Human Capital
Govt spending on education
Taxes for public schools for primary and secondary
2. What are your thoughts on the government supporting the payment of higher education for students? Would this positive or negative for a country?

19. Module 39 Role of Govt Continued Govt and Technology
Mostly private investment, but some R&D done by govt agencies, such as Brazil govt researching soil and helping develop new varieties of crops
Political Stability, etc.
Political Stability and protection of property rights are crucial for long-run econ. Growth
Laws and institutions help stability & less corruption

20. Module 39 Is World Growth Sustainable? Negative Externalities
What is sustainability?
Whether it can continue in the face of limited supply of natural resources
Natural Resources and Growth
Read over pages for further clarifications
Negative Externalities
The cost that individuals or firms impose on others without having to offer compensation.
What global impact does increased productivity have on the world and environment? What are the pros and cons?

21. Module 39 Look at Module 39.3 for Climate change and country growth.
Countries that are increasing production also increase carbon dioxide emissions.
Which country has the most?
Who was the country that produced the most before that country?

22. Module 39
What’s the general economist conclusion about climate change and economic growth?
Global climate change is a problem, but market incentives and government actions can help.

23. Module 40
Read and complete Tackling the Test problems on page 403 #1-5