1. ECONOMIC GROWTH AND THE NEW ECONOMY17
C H A P T E R
ECONOMIC
GROWTH AND THE NEW ECONOMY

2. GROWTH ECONOMICS
Supply Factors
Increases in the Quantity & Quality of Natural Resources
Increases in the Quantity & Quality of Human Resources
Increases in the Supply (or Stock) of Capital Goods
Improvements in Technology

3. GROWTH ECONOMICS
Demand Factor
Households, Businesses, and Government Must Purchase the Economy’s Expanded Output
Efficiency Factor
The Economy Must Achieve Economic Efficiency as well as Full-Employment

4. Economic Growth PRODUCTION POSSIBILITIES ANALYSIS Capital Goods b a
Consumer Goods

5. Growth and Production Possibilities Labor and Productivity
PRODUCTION POSSIBILITIES ANALYSIS
Growth and Production Possibilities
Labor and Productivity
Real GDP =
Worker
Hours X
Labor
Productivity
Worker-Hours
Labor-Force Participation Rate
Labor Productivity

6. SUPPLY DETERMINANTS OF REAL OUTPUT
Size of employed labor force
Average hours of work
Labor
Inputs
(Hours
of Work)
REAL
GDP = X
Technological advance
Quantity of capital
Education and training
Allocative efficiency
Other
Labor
Productivity
(Average
Output
Per Hour)

7. Production Possibilities and Aggregate Supply
GROWTH IN THE AD-AS MODEL
Production Possibilities and Aggregate Supply
Extending the AD-AS Model

8. GROWTH IN THE AD-AS MODEL
ASLR1
ASLR2 C A
Price Level
Capital Goods B D Q1 Q2
Consumer Goods
Real GDP

9. ECONOMIC GROWTH IN THE EXTENDED AD – AS MODEL
ASLR1
ASLR2
AS2
AS1
Price Level P2 P1
AD2
AD1 o Q1 Q2
Real GDP

10. U.S. ECONOMIC GROWTH RATES Annual Averages for Five Decades5 4 3 2 1
Average Annual Increase (Percent)
Real GDP
Real GDP Per Capita

11. Inputs versus Productivity Quantity of Labor Technological Advance
ACCOUNTING FOR GROWTH
Inputs versus Productivity
Quantity of Labor
Technological Advance
Quantity of Capital
Infrastructure
Education and Training
Human Capital

12. ACCOUNTING FOR GROWTH Increase in quantity of labor 33%
Sources of Growth of U.S. Output,
Increase in quantity of labor %
Increase in labor productivity %
Technological advance %
Quantity of capital %
Education and training %
Economies of scale %
Improved resource
allocation %
100%

13. Changes in the Educational Attainment of the U.S. Adult Population
ACCOUNTING FOR GROWTH
Changes in the Educational Attainment of the U.S. Adult Population
100 80 60 40 20
Percent of U.S. Population
College Graduates or More
High School Graduates or More
Source: U.S. Census Bureau

14. Improved Resource Allocation Other Factors
ACCOUNTING FOR GROWTH
Economies of Scale
Improved Resource Allocation
Other Factors

15. Characteristics of the New Economy
PRODUCTIVITY GROWTH
AND THE NEW ECONOMY
Characteristics of the New Economy
Microchip and Information Technology
New Firms and Increasing Returns
Start-Up Firms

16. PRODUCTIVITY GROWTH AND THE NEW ECONOMY
Sources of Increasing Returns
More Specialized Inputs
Spreading of Development Costs
Simultaneous Consumption
Network Effects
Learning by Doing
Global Competition

17. PRODUCTIVITY GROWTH AND THE NEW ECONOMY
Macroeconomic Implications
Faster Noninflationary Growth
Low Natural Rate of Unemployment
Growing Tax Revenues
Skepticism About the New Economy

18. GLOBAL PERSPECTIVE 1 2 3 4 5 6 7 8 9 10 Rank
Growth Competitiveness Ranking 2000
Rank
United States
Singapore
Luxembourg
Netherlands
Ireland
Finland
Canada
Hong Kong, China
United Kingdom
Switzerland 1 2 3 4 5 6 7 8 9 10
Source: World Economic Forum

19. Chapter Conclusions The Antigrowth View In Defense of Economic Growth
IS GROWTH DESIRABLE
AND SUSTAINABLE?
The Antigrowth View
In Defense of Economic Growth
Chapter Conclusions

20. KEY TERMS infrastructure human capital economies of scale New Economy
information technology
start-up firms
increasing returns
network effects
learning by doing
economic growth
supply factors
demand factor
efficiency factor
labor productivity
labor-force participation rate
Copyright McGraw-Hill/Irwin 2002
BACK
END

21. Deficits, Surpluses and the Public Debt
Chapter 18 Next...
Deficits,
Surpluses
and the
Public Debt