how do economists measure economic growth?
as either a) an increase in real GDP or b) an increase in real GDP per capital over time
how has real GDP grown over time?
real GDP in the united states has grown at an average annual rate of abouth 3.5% since 1950; real GDP per capita has grown at roughly a 2.3% annual rate over that same period
what does modern economic growth bring?
before the advent of modern economic growth starting in england in the late 1700s, living standards showed no sustained increases over time.modern economic growth brings with it not only increases in GDP per capita but also profound cultural, social and political changes
why does large differences in standards of living exist today?
because certain areas like the United States have experienced nearly 200 yrs of modern economic growth, while other areas have had only a few decades of economic growth
can other countries catch up on this economic growth?
poor follower countries can catch up with and even surpass the living standards of rich leader countries. The growth rates of rich country GDPs per capita are limited to about 2% per yr because, in order to further increase their standards of living, rich countries must invent and apply new technologies. By contrast, poor follower countries can grow much faster because they can simply adopt the cutting edge technologies and institutions already developed by rich leader countries
what causes substantial differences in living standards?
labor supply causes it. This explains why US GDP per capital is nearly a third higher than french GDP per capita despite both countries being technologically advanced leader countries.
an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology 2) an increase of real output(GDP) or real output per capita
real GDP per capita
inflation-adjusted output per personal real GDP/population
rule of 70
A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.
modern economic growth
the historically phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita
countries that develop and use advanced technologies, which then become available to follower countries
countries that adopt advanced technologies that previously were developed and used by leader countries
supply factors (in growth)
an increase in the availability of a resource, an improvement in its quality, or an expansion of technological knowledge that makes it possiblefor an economy to produce a greater output of goods and services
demand factor (in growth)
The increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy
efficiency factor (in growth)
the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors make possible
total output divided by the quantity of labor employed to produce it; the average product of labor or output per hour of work
labor-force participation rate
the percentage of the working-age population that is actually in the labor force
the bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period
the capital goods usually provided by the public sector for the use of its citizens and firms (for example, highways, bridges, transit systems, wastewater treatment facilities, municipal water systems, and airports)
the knowledge and skills that make a person productive
economies of scale
reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run, the economies of mass production
new and more efficient methods of delivering and receiving information through use of computers, fax machines, wireless phones, and the internet
a new firm focused on creating and introducing a particular new product or employing a specofic new production or distribution method
an increase in a firm's output by a larger percentage than the percentage increase in its inputs
increases in the value of a product to each user, including existing users, as the total number of users rises
learning by doing
achieving greater productivity and lower average total cost through gains in knowledge and skill that accompany repetition of a task; a source of economies of scale
labor productivity growth
over long periods, labor productivity growth determines an economys growth of real wages and its standards of living
faster productivity growth
many economists believe that the united states has entered a period of faster productivity growth and higher rates of economic growth
is based on rapid technological change in the form of the microchip and information technology, increasing returns and lower per-unit costs, and heightened global competition that helps hold down prices
rapid us productivity growth rates
more-rapid US productivity growth means that the US economy can grow at higher annual rates than it could with less-rapid productivity growth. Nonetheless, many economists caution that it is still too early to determine whether the recent higher rates of productivity growth are a lasting long-run trend or a fortunate short-lived occurence
institutional structures that promote growth includes strong property rights, patents, efficient finiancial institutions, education, and a competitive market system
the ingredients of economic growth
to whichwe can attribute changes in growth rates include 4 supply factors (increases in the qty and quality of natural resources,increases in the qty and qlty of human resources, increases in the stock of capital goods, and improvements in technology); one demand factor (increases in total spending), and one efficiency factor (acheiving allocative and productive efficiency)
improvements in labor productivity
accounted for about two-thirds of the increase in US real GDP between 1990 and 2007; the use of more labor inputs accounted for the remainder
main contributions to US productivity
improved technology, more capital, greater education and training, economies of scale, and better resource allocation have been the main contributors to US productivity growth and thus to US economic growth