1. Economic Growth 8 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Economic Growth Increase in real GDP or real GDP per capita over some time period Percentage rate of growth Growth lessens burden of scarcity Arithmetic of growth: Rule of 70 Approximate number of years required to double real GDP = 70 annual percentage rate of growth LO1

3. Economic Growth Growth U.S. real GDP 1950-2012 3.2% per year Growth in U.S. real GDP per capita 2% per year LO1

4. Modern Economic Growth Sustained and ongoing increases in living standards causing dramatic increases in the standard of living in less than a single lifetime. LO2

5. Modern Economic Growth Time for leisure Social change Democracy Human lifespan doubled Help Desk LO2

6. Modern Economic Growth Began in 1700s with Industrial Revolution Has spread slowly Starting date main cause of worldwide differences in living standards Catching up is possible Leader countries invent technology Follower countries adopt technology Can grow faster LO2

7. Modern Economic Growth Figures are in 2005 dollars Source: Penn World Table version 6.3, pwt.econ.upenn.edu LO2 Real GDP Real GDP Average annual per capita, per capita, growth rate, Country 1960 2010 1960-2010 United States $ 14,766 $41,365 2.1% United Kingdom 11,257 34,2682.2 France 9,347 31,2992.4 Ireland 6,666 34,8773.3 Japan 5,472 31,4773.5 Singapore 4,149 55,8625.2 Hong Kong 3,849 38,8654.6 South Korea 1,765 26,6095.4

8. Modern Economic Growth LO3

9. Institutional Structures of Growth Strong property rights Patents and copyrights Efficient financial institutions Literacy and widespread education Free trade Competitive market system LO3

10. Determinants of Growth Supply factors Increases in quantity and quality of natural and human resources Increases in the supply (or stock) of capital goods Improvements in technology LO3

11. Determinants of Growth Demand factor Households, businesses, and government must purchase the economy’s expanding output Efficiency factor Must achieve economic efficiency and full employment LO3

12. Labor and Productivity Size of employed labor force Average hours of work Labor Inputs (hours of work) Technological advance Quantity of capital Education and training Allocative efficiency Other Labor Productivity (average output per hour) Real GDP Real GDP = hours of work x labor productivity x = LO3

13. U.S. Economic Growth LO3 Accounting for the Growth of U.S. Real GDP, 1953-2011, Plus Projection from 2011-2022 (Average Annual Percentage Changes) Source: Derived from Economic Report of the President, 2008, p. 45; and Economic Report of the President, 2010, p. 76 Economic Report of the President 2011, p. 52; Bureau of Economic Analysis; Bureau of Labor Statistics.

14. Accounting for Growth Factors affecting productivity growth Technological advance (40%) Quantity of capital (30%) Education and training (15%) Economies of scale and resource allocation (15%) LO3

15. Accounting for Growth Average Test Scores of Eighth Grade Students in Math and Science, 2011 Mathematics Science LO3

16. Productivity Growth Average rate of growth 1.5% per year 1973-1995 2.4% per year 1995-2012 Affects real output, real income, and real wages Pay higher wages without lowering profit LO4

17. Productivity Growth LO5