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 Increase in real GDP or Real GDP per capita over some time period LO1

4. Economic Growth Percentage rate of growth Growth lessens burden of scarcity LO1

5. Economic Growth Arithmetic of growth: Rule of 70 Approximate number of years required to double real GDP = 70 annual percentage rate of growth LO1

6. 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

7. 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

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

9. Modern Economic Growth More time for leisure Social change Moving toward democracy Human lifespan doubled 67 LO2

10. Modern Economic Growth Began in 1700s with Industrial Revolution Has spread slowly Starting date main cause of worldwide differences in living standards LO2

11. Modern Economic Growth LO3

12. Modern Economic Growth Catching up is possible Leader countries invent technology Follower countries adopt technology Can grow faster LO2

13. 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

14. Institutional Structures of Growth Strong property rights Patents and copyrights Efficient financial institutions Literacy and widespread education Free trade allowing countries to specialize (Theory of Comparative Advantage) Competitive market system (Supply and Demand) LO3

15. Determinants of Growth Supply factors (4) Demand factor (1) Efficiency factor (1) LO3

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

17. 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

18. 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

19. 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.

20. Accounting for Growth Factors affecting productivity growth Technological advance (40%) Quantity of capital (30%) Education and training (15%) LO3

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

22. 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%) EoS = Reductions in per-unit production costs that result from increases in output levels LO3

23. 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

24. Productivity Growth Microchip/information technology Start-up firms and increasing returns Sources of increasing returns More specialized inputs Spreading of development costs Simultaneous consumption Network effects Learning by doing Global competition LO5

25. Productivity Growth LO5