1. Half Sheet
How can you become a more productive, useful member to society in the short run (immediate future) and the long run (over the course of your life)?

2. Economic Growth
Chapter 25

3. Economic Growth
Economists define economic growth as either an increase in Real GDP or an increase in Real GDP per capita
This is usually over the course of either a quarter (3 months) or a year
To find Real GDP per capita you divide the Real GDP by the population
RGDP = $200B; Pop. = 40M
$200B/40M = $5000
If their RGDP per capita next year was $5100 they would see a 2% increase from year one to year two
[($5100-$5000)/$5000] x 100 = .02 OR 2%

4. Economic Growth
RGDP gives a more accurate look of how well a country is doing regarding its population
China’s GDP in 2001 = $1.1T; RGDP per capita = $890
Denmark’s GDP in 2001 = $166B, RGDP per capita = $31,090
Which country did better for its people?
Growth is a goal because it alleviates the stress of scarcity
If we can produce more today we will have more for tomorrow

5. Rule of 70
Rule of 70 is used to used to figure out how long it will take our economy to double
Approx. number of years to double = 70/annual percentage rate of growth
70/3= 23
Why do economists care about such small annual growth?
In the US 3% could = $143 B in additional output
In a smaller country, it could be the difference between starving and not

6. Economic Growth
There are two ways to see increases in RGDP and/or income:
1) Increase the number of inputs/resources economy is using
2) Increase productivity of those inputs
Productivity increases when the health, skill, training or motivation increases
When you look at the US’s RGDP per capita in 1929 it was $6,738;
in 2002 it was $32,664
This is slightly deceiving since we have become much more efficient and our work week has decreased by 15 hours

7. Ingredients of Growth
There are six ingredients to create economic growth:
Supply Factors (changes in F.O.P.)
1) Increase in quantity/quality of natural resources
2) Increase in quantity/quality of human resources
3) Increase in supply/stock of capital goods
4) Improvements in technology
Demand Factor (increase in total spending)
5) Households, government, and businesses must purchase the economy’s output of goods/services
Efficiency Factor (efficiently produce what/how much people want in cheapest way)
6) Achieve economic efficiency and full employment
(full employment is 4 – 6% unemployment)

8. Ingredients of Growth Each of these factors are interrelated
If businesses cut investment spending (supply), result is higher unemployment and lower spending on consumer goods (demand) will occur
If we aren’t efficient with resources, we lose profit, which will reduce the supply of
capital goods – human-made resources used
to produce goods & services; goods that
do not directly satisfy human wants

9. Production Possibilities Analysis
Consumer Goods
Capital Goods
Economic growth occurs between AB and CD
This growth happens when one of the six factors occurs
a = max. efficiency in old economy
b = max. efficiency in new economy
c = when economy has not realized it’s full potential to grow b c a

10. Production Possibilities Analysis
Society can increase its real output in two main ways:
Increase its inputs (resources)
Raising productivity of resources
Labor productivity = output/ number of hours worked
Productivity rises when better technology, education, training, or motivation is introduced
Can also increase when labor is better managed, organized, or moved to more efficient industries

11. U.S. Economic Growth Rates
The US has grown in RGDP about 2.3% annually for the last 50 years (roughly)
We surged from growing by more than 4% (in RGDP) Clinton 2nd term
We fell to 0.3% in 2001 and climbed back to 3.6% in 2004 GWBush 1st term
We grew at a rate of 1.6% in 2016
US Real GDP grew 3.1% in 2nd qtr of 2017
US Real GDP grew 3.3% in 3rd qtr of 2017
Final 2017 numbers not yet available

12. Accounting for Growth
The Council of Economic Advisers uses two main categories to determine growth:
Increases in hours of work
Increases in labor productivity

13. Accounting for Growth
Productivity is more important than increase in work hours
“Work smarter, not [longer]”
Technology increases productivity
Includes not only new “stuff” but also new ideas/ways of doing things
Instead of grading 6 sets of tests at home, I use “servants” to grade them one set at a time; instead of 30 minutes times 6 (180), 5 minutes times 6 (30) reduced grading time by 84%
Could also be called laziness, but I digress…

14. Accounting for Growth
Old “new” technology included conveyor belts and assembly lines
In your lifetime new technology has included the Internet, and microcircuits
What’s next?
Biotechnology
Nanotechnology
What changes will occur in music, travel, medicine, etc?

15. Accounting for Growth
Quantity of Capital also assists in increasing productivity
Being able to do more with the same amount (or less) human power
If you give employees more/better equipment, they can work more efficiently
If the government increases its public capital (infrastructure) the private companies benefit—how?
They create roads, transit systems, airports, educational facilities, etc. which private companies take advantage of

16. Accounting for Growth
“He that hath a trade hath an estate”—Ben Franklin
What does he mean?
What counts as a trade?
The more education you have (as a country) the more you should be able to produce
This has historically been true for the US but is currently changing—why?

17. Accounting for Growth
Our percent of educated people has increased since 1950
What does that say about getting a job?
Critics say that while the number of educated has increased we are “watering down” our education
What could be potential costs of that for the future/now?

18. Accounting for Growth Economies of Scale
When costs/unit go down due to a change in improved use of resources, better technology, number of firms changing, taxes and input cost changes
EX: You own a car plant. If you only make one car, your cost/unit will be really high because it took a lot of money to make that one. However, if you make millions of cars, your cost/unit will be really small because the cost is spread out over each car.
When you have economies of scale your RGDP goes up

19. Accounting for Growth Other factors that lead to growth
Improved resource allocations: we put equipment and people where they work the best
We have a market economy
We are a materialistic society
We take risks
What are some other factors?

20. The Productivity Acceleration: A New Economy?
Some economists believe that since we have had such a boom in technology and increase in global competition the US is in a new economy
We have greater potential to grow our economy faster than in decades past

21. The Productivity Acceleration: A New Economy?
Reasons we’ve become more productive:
The microchip and information technology
New firms and increased returns
Global competition (NAFTA, EU, WTO)

22. The Productivity Acceleration: A New Economy?
Issues/benefits of the new economy
Rapid growth can create inflation
Promotes a low natural unemployment rate because people can find jobs via technology faster
Higher incomes = higher tax revenue for the government
Ultimately a rapid increase in GDP will lead to a shortage (increased demand) which will lead to inflation—if we cut money to slow spending, it can lead to a recession

23. The Productivity Acceleration: A New Economy?
Why wouldn’t we want to grow?
Industrialization leads to pollution, global warming, ozone depletion, and other environmental issues
Doesn’t solve poverty, homelessness, or discrimination
We can “make a better living” but it won’t necessarily lead to a “good life”
Growth is not sustainable because Earth has a finite amount of resources

24. The Productivity Acceleration: A New Economy?
Why we do want to grow…
With growth the majority of people can buy more: education, recreation, travel, medical, communication, services, products
It leads to more: art, music, poetry, theater, drama, time for spiritual growth and human development
Growth is sustainable: yes the Earth has limited resources, but when something becomes too rare (expensive) we find substitutes; invent new things