2. 17 - 1 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show ECONOMIC GROWTH AND THE NEW ECONOMY 17 C H A P T E R

3. 17 - 2 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show 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 GROWTH ECONOMICS Supply Factors

4. 17 - 3 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show Households, Businesses, and Government Must Purchase the Economy’s Expanded Output GROWTH ECONOMICS Demand Factor Efficiency Factor The Economy Must Achieve Economic Efficiency as well as Full-Employment

5. 17 - 4 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show PRODUCTION POSSIBILITIES ANALYSIS Economic Growth A B C D a b Capital Goods Consumer Goods

6. 17 - 5 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show PRODUCTION POSSIBILITIES ANALYSIS Growth and Production Possibilities Labor and Productivity Worker-Hours Labor-Force Participation Rate Labor Productivity Real GDP = Worker Hours X Labor Productivity

7. 17 - 6 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show Size of employed labor force Average hours of work Technological advance Quantity of capital Education and training Allocative efficiency Other REAL GDP SUPPLY DETERMINANTS OF REAL OUTPUT Labor Inputs (Hours of Work) Labor Productivity (Average Output Per Hour) X =

8. 17 - 7 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show GROWTH IN THE AD-AS MODEL Production Possibilities and Aggregate Supply Extending the AD-AS Model

9. 17 - 8 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show GROWTH IN THE AD-AS MODEL A B C D Capital Goods Consumer Goods Price Level Real GDP AS LR1 AS LR2 Q1Q1 Q2Q2

10. 17 - 9 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show ECONOMIC GROWTH IN THE EXTENDED AD – AS MODEL Price Level Real GDP o P1P1 AS 2 AS LR1 AD 2 Q1Q1 AS LR2 Q2Q2 AD 1 AS 1 P2P2

11. 17 - 10 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show U.S. Economic Growth, Annual Averages for Five Decades 1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 U.S. ECONOMIC GROWTH RATES 543210543210 Real GDPReal GDP Per Capita Average Annual Increase (Percent)

12. 17 - 11 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show ACCOUNTING FOR GROWTH Inputs versus Productivity Quantity of Labor Technological Advance Quantity of Capital Infrastructure Education and Training Human Capital

13. 17 - 12 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show ACCOUNTING FOR GROWTH Increase in quantity of labor 33% Increase in labor productivity 67% Technological advance 26% Quantity of capital 18% Education and training 11% Economies of scale 6% Improved resource allocation 6% 100% Sources of Growth of U.S. Output, 1929-2000

14. 17 - 13 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show Changes in the Educational Attainment of the U.S. Adult Population 1950 1960 1970 1980 1990 2000 100 80 60 40 20 0 College Graduates or More High School Graduates or More ACCOUNTING FOR GROWTH Source: U.S. Census Bureau Percent of U.S. Population

15. 17 - 14 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show ACCOUNTING FOR GROWTH Economies of Scale Improved Resource Allocation Other Factors

16. 17 - 15 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show PRODUCTIVITY GROWTH AND THE NEW ECONOMY Characteristics of the New Economy Microchip and Information Technology New Firms and Increasing Returns Start-Up Firms

17. 17 - 16 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show 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

18. 17 - 17 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show PRODUCTIVITY GROWTH AND THE NEW ECONOMY Macroeconomic Implications Faster Noninflationary Growth Low Natural Rate of Unemployment Growing Tax Revenues Skepticism About the New Economy

19. 17 - 18 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show GLOBAL PERSPECTIVE Growth Competitiveness Ranking 2000 Source: World Economic Forum 1 2 3 4 5 6 7 8 9 10 United States Singapore Luxembourg Netherlands Ireland Finland Canada Hong Kong, China United Kingdom Switzerland Rank

20. 17 - 19 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show IS GROWTH DESIRABLE AND SUSTAINABLE? The Antigrowth View In Defense of Economic Growth Chapter Conclusions

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

22. 17 - 21 Copyright McGraw-Hill/Irwin, 2002 Growth Economics Production Possibilities Analysis Supply Determinants of Real Output Growth in the AD-AS Model U.S. Economic Growth Rates Accounting for Growth Productivity Growth in the New Economy Key Terms Previous Slide Next Slide End Show Deficits, Surpluses and the Public Debt Chapter 18 Next...