2. 17 - 1 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show ECONOMIC GROWTH 17 C H A P T E R

3. 17 - 2 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A 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 0

6. 17 - 5 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show PRODUCTION POSSIBILITIES ANALYSIS Growth and Production Possibilities Labor and Productivity Hours of Work Labor-Force Participation Rate Labor Productivity Real GDP = Hours of Work X Labor Productivity

7. 17 - 6 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show GROWTH IN THE AD-AS MODEL Production Possibilities and Aggregate Supply Extended AD-AS Model

9. 17 - 8 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show ACCOUNTING FOR GROWTH Growth Accounting Labor Inputs versus Productivity Technological Advance Quantity of Capital Infrastructure Education and Training Human Capital

13. 17 - 12 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show ACCOUNTING FOR GROWTH Increase in Real GDP Increase in quantity of labor Increase in labor productivity Accounting for Growth of U.S. Output, 1960-2008 1960 Q2 to 1973 Q4 1973 Q4 to 1990 Q3 1990 Q3 to 2002 Q3 2002 Q3 to 2008 Q4* 4.2 1.6 2.6 2.9 1.6 1.3 2.9 0.9 2.0 3.2 1.4 1.8 *Rates beyond 2002 are projections Source: Economic Report of the President, 2003

14. 17 - 13 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A 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, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show GLOBAL PERSPECTIVE Average Test Scores, 8 th. Grade, 1999 Source: Third International Math and Science Study Mathematics Rank Score Science Rank Score 1 2 3 4 5 6 7 8 9 10 19 604 587 585 582 579 558 540 534 532 531 502 Singapore South Korea Taiwan Hong Kong(China) Japan Belgium Netherlands Slovak Republic Hungary Canada United States 1 2 3 4 5 6 7 8 9 10 18 569 568 552 550 549 545 540 539 538 535 515 Taiwan Singapore Hungary Japan South Korea Netherlands Australia Czech Republic United Kingdom Finland United States

17. 17 - 16 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show PRODUCTIVITY ACCELERATION: A NEW ECONOMY? Reasons for the Productivity Acceleration Microchip and Information Technology New Firms and Increasing Returns Start-Up Firms

18. 17 - 17 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show Sources of Increasing Returns More Specialized Inputs Spreading of Development Costs Simultaneous Consumption Network Effects Learning by Doing Global Competition PRODUCTIVITY ACCELERATION: A NEW ECONOMY?

19. 17 - 18 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show Macroeconomic Implications More Rapid Economic Growth Low Natural Rate of Unemployment Growing Tax Revenues Skepticism About the New Economy PRODUCTIVITY ACCELERATION: A NEW ECONOMY?

20. 17 - 19 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show GLOBAL PERSPECTIVE Growth Competitiveness Ranking 2002 Source: World Economic Forum 1 2 3 4 5 6 7 8 9 10 United States Finland Taiwan Singapore Sweden Switzerland Australia Canada Norway Denmark Rank

21. 17 - 20 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show IS GROWTH DESIRABLE AND SUSTAINABLE? The Antigrowth View In Defense of Economic Growth

22. economic growth supply factors demand factor efficiency factor labor productivity labor-force participation rate growth accounting 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, Inc. 2005

23. 17 - 22 Copyright McGraw-Hill/Irwin, 2005 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 Acceleration: A New Economy? Key Terms Previous Slide Next Slide End Show Deficits, Surpluses and the Public Debt Chapter 18 Next...