Econ Ch16 Economic Growth

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Econ Ch16 Economic Growth

  1. 1. Chapter Economic Growth 16
  2. 2. Objective: <ul><li>Students explain what causes economic growth. </li></ul>
  3. 3. Aggregate Supply <ul><li>Economic growth=increase in real GDP </li></ul><ul><li>Aggregate supply is the total quantity of goods and services produced in the economy at that time. </li></ul><ul><li>Q: How does aggregate supply differ from supply in general? </li></ul>
  4. 4. Like the supply curves you studied in Chapter 5, it is determined, at least in part, by the desire of firms to earn a profit. That is why the graph shows output increasing as the price level rises.
  5. 5. Aggregate Demand <ul><li>Aggregate demand is a term that describes the various quantities of goods and services that all people, taken together, are willing and able to buy at various price levels in a specific period of time. </li></ul><ul><li>It represents all of the demand within the economy. </li></ul><ul><li>Keep in mind that when economists speak of aggregate demand, they are referring to an average price level, not to the price of any single product. </li></ul>
  6. 6. <ul><li>Among the factors that affect aggregate demand is a change in savings. </li></ul><ul><li>If consumers save less and spend more, the increase in consumer spending increases aggregate demand. </li></ul><ul><li>In much the same way, an increase in savings can result in a decrease in aggregate demand—leaving consumers with less money to spend. </li></ul>
  7. 7. Macroeconomic Equilibrium <ul><li>At any other level of output or price, the economy tends to be unstable. </li></ul><ul><li>It is not likely to last, and eventually the economy will return to point Q . </li></ul><ul><li>Macroeconomic equilibrium is the point at which aggregate supply balances aggregate demand. </li></ul><ul><li>Think equilibrium price but on a national level. </li></ul>
  8. 8. Examining Economic Growth <ul><li>Real economic growth occurs when GDP increases faster than the population. </li></ul><ul><li>The result is an improvement in the overall standard of living. </li></ul>Have you ever ordered a pizza only to have a couple of hungry friends show up unexpectedly?
  9. 9. GDP & Population Growth <ul><li>Regression = pop. Growth but no GDP growth </li></ul><ul><li>Stagnation = both increase at same rate </li></ul><ul><li>GDP per capita (per person)= better measure of the effects of growth than Real GDP </li></ul>
  10. 10. Standard of Living <ul><li>The term standard of living refers to the overall quality of life. </li></ul><ul><li>It is usually measured by real GDP per capita. </li></ul>
  11. 11. Comparing Standards of Living Suburban community in Niger, Africa Suburban community in the United States
  12. 12. Sources of Economic Growth <ul><li>Factors of Production </li></ul><ul><li>Natural Resources </li></ul><ul><li>Labor </li></ul><ul><li>Capital </li></ul><ul><li>Entrepreneurship </li></ul><ul><li>Productivity Gains </li></ul><ul><li>increases in the skills of workers. </li></ul><ul><li>increases in the ratio of capital to labor. </li></ul><ul><li>improved use of all factors of production. </li></ul><ul><li>the development and use of better equipment and products. </li></ul>
  13. 13. Sources of Economic Growth <ul><li>Productivity Gains Come From </li></ul><ul><li>increases in the skills of workers. </li></ul><ul><li>increases in the ratio of capital to labor. </li></ul><ul><li>improved use of all factors of production. </li></ul><ul><li>the development and use of better equipment and products. </li></ul><ul><li>More productive workers </li></ul><ul><ul><li>Ex: education/on-the-job training </li></ul></ul><ul><li>Capital Investment </li></ul><ul><ul><li>Ex: tools/equipment </li></ul></ul><ul><li>Management </li></ul><ul><ul><li>Ex: good decisions </li></ul></ul><ul><li>Research & Development </li></ul><ul><ul><li>Ex: improvements/inventions </li></ul></ul>
  14. 14. R&D + Capital Investment = Economic Growth Tools wear out and depreciate Capital Investment: buy new tools Research & Development: Latest greatest tools Buy New, Improved Equipment: often before old ones wear out R&D Leads to Capital Investment
  15. 15. Review: Terms to Know <ul><li>Aggregate Supply </li></ul><ul><li>Aggregate Demand </li></ul><ul><li>Macroeconomic Equilibrium </li></ul><ul><li>Economic Regression </li></ul><ul><li>Economic Stagnation </li></ul><ul><li>GDP per capita </li></ul><ul><li>Standard of Living </li></ul><ul><li>Research & Development </li></ul>
  16. 16. Can You Answer? <ul><li>How does aggregate supply differ from supply in general? Aggregate demand? </li></ul><ul><li>What is the relationship between economic growth and population growth? </li></ul><ul><li>What is the relationship between economic growth and standard of living? </li></ul><ul><li>What are four sources of economic growth? </li></ul>

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