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26 terms

Macroeconomic

Chapter 8
STUDY
PLAY
Economic Growth can be defined and measured as either:
- an increase in real GDP occurring over some time period;
- an increase in real GDP per capita occurring over some time period
Real GDP per capita a (or per capita output) is
the amount of real output per person in the country
Real GDP per capita =
Real GDP/Population
The Growth of real GDP is more useful
for measuring expansion of military potential preeminence
Unless specified otherwise, growth rates reported in the news and by international agencies use
the definition of economic growth
Real GDP per capita
is ore useful for comparing living standarts
Economic growth is a widely held goal because
it results in rising real wages and incomes and thus higher standards of living
Our current era of Modern Economic Growth is characterized by
sustained and ongoing increases in living standards that can cause dramatic increases in the standard of living within less than a single human lifetime.
Modern economic growth has spread slowly from
its British birthplace (1776 - invention of steam engine)
What is the main cause of the vast differences in per capita GDP levels that we see today?
The different starting dates for modern economic growth in various parts of the world
For example, modern economic growth has occurred for nearly 200 years in the U.S. but only a few decades in Africa
As a result, average living standards at present are 20 times higher in the United States than in Africa
What is the average growth rate of Leader (richer) countries?
2-3 percent
Why is hard to for leader countries to grow rapidly?
Due to the fact that inventing and implementing new technology is costly and slow (hard to grow rapidly)
Why Follower countries (poorer countries) can grow much faster?
They simply adopt existing technology from rich countries (they can skip many technological and developmental steps)
Large differences in living standards even between rich countries can be caused by
differences in Labor Supply
How many percent the United States real GDP per capita is higher than France?
40 percent
Why the US real GDP per capita is higher than in many other leader countrie?
U.S. citizens put in substantially more labor time (more hours worked) than do the citizens of other leader countries (less leisure time for U.S. citizens
What is the labor force participation rate?
Labor force participation rate is the percentage of working-age population actually in the labor force
Institutional Structures that Promote Growth:
- Strong property rights;
- Patents and copyrights;
- Efficient financial institutions;
- Literacy and Widespread Education;
- Free Trade;
- A competitive market system;
- Social-cultural-political environment.
Strong property rights
- is necessary for rapid and sustained economic growth;
- People will not invest if they believe thieves or the government will steal their investments or returns
Patents and copyrights
- Necessary if society wants a constant flow of innovative new technologies and ideas
- Financial incentive for inventions
Efficient financial institutions
Required to channel the savings generated by households to businesses and entrepreneurs
Literacy and Widespread Education
-Without highly educated inventors, new technology is not invented
-Without highly educated work-force, impossible to implement new technologies and put them to productive use
Free Trade
Allows countries to specialize in items in which they have a comparative advantage - this encourages efficient use of resources and increases consumption
A competitive market system
- Prices and profits serve as signals to tell firms what to make and how much of it to make
- Firms have substantial autonomy to follow these market signals in leader countries
Social-cultural-political environment
- U.S. has had stable political system that encourages economic and political freedom
- Encourages production and material progress
- Positive attitude towards risk-taking and work