Chapter8-Macro

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Chapter8-Macro

  1. 1. Chapter 8 Productivity and Growth
  2. 2. Growth and the PPF • What is the PPF again? – Why is it importance?
  3. 3. Rank these 4 countries, richest to poorest: Country A -- Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. _________________________________________________________
  4. 4. Rank these 4 countries, richest to poorest: Country A -- Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Size: About the size of California Pop: 127 million Natural resources: few; fish _________________________________________________________
  5. 5. Rank these 4 countries, richest to poorest: Country A -- Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Size: About the size of California Pop: 127 million Natural resources: few; fish _________________________________________________________ Country C -- Size: 1.8 times the size of US (land mass) Pop: 143 million Natural Resources: tons! Oil, natural Gas, coal, timber (vast supplies)
  6. 6. Rank these 4 countries, richest to poorest: Country A -- Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Size: About the size of California Pop: 127 million + Natural resources: few; fish _________________________________________________________ Country C -- Country D -- Size: 1.8 times the size of US (land mass) Size: 3.5 times bigger than Wash, DC Pop: 143 million Pop: 4 million Natural Resources: tons! Oil, natural Natural Resources: not many, fish, Gas, coal, timber (vast supplies) deep water port Results:
  7. 7. Rank these 4 countries, richest to poorest: Country A -- Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc.
  8. 8. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. GDP/capita = $13,600 life expectancy = 76.9 yrs literacy rate = 97.1 %
  9. 9. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. GDP/capita = $13,600 life expectancy = 76.9 yrs literacy rate = 97.1 % Country B -- Size: About the size of California Pop: 127 million Natural resources: few; fish
  10. 10. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. GDP/capita = $13,600 life expectancy = 76.9 yrs literacy rate = 97.1 % Country B -- Japan Size: About the size of California Pop: 127 million Natural resources: few; fish GDP/capita = $30,400 life expectancy = 81.15 yrs literacy rate = 99%
  11. 11. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Japan Size: About the size of California Pop: 127 million Natural resources: few; fish GDP/capita = $13,600 GDP/capita = $30,400 life expectancy = 76.9 yrs life expectancy = 81.15 yrs _________________________________________________________ literacy rate = 97.1 % literacy rate = 99% Country C -- Size: 1.8 times the size of US (land mass) Pop: 143 million Natural Resources: tons! Oil, natural Gas, coal, timber (vast supplies)
  12. 12. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Japan Size: About the size of California Pop: 127 million Natural resources: few; fish GDP/capita = $13,600 GDP/capita = $30,400 life expectancy = 76.9 yrs life expectancy = 81.15 yrs literacy rate = 97.1 % literacy rate = 99% _________________________________________________________ Country C -- Russia Size: 1.8 times the size of US (land mass) Pop: 143 million Natural Resources: tons! Oil, natural Gas, coal, timber (vast supplies) GDP/capita = $10,700 life expectancy = 67.1 yrs literacy rate = 99.6%
  13. 13. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Japan Size: About the size of California Pop: 127 million Natural resources: few; fish GDP/capita = $13,600 GDP/capita = $30,400 life expectancy = 76.9 yrs life expectancy = 81.15 yrs literacy rate = 97.1 % literacy rate = 99% _________________________________________________________ Country C -- Russia Country D -- Size: 1.8 times the size of US (land mass) Size: 3.5 times bigger than Wash, DC Pop: 143 million Pop: 4 million Natural Resources: tons! Oil, natural Natural Resources: not many Gas, coal, timber (vast supplies) deep water port GDP/capita = $10,700 life expectancy = 67.1 yrs literacy rate = 99.6%
  14. 14. Rank these 4 countries, richest to poorest: Country A -- Argentina Size: 3/10 size of US Population: 40 Million Natural resources: many, Fertile land, lead, zinc, tin, etc. Country B -- Japan Size: About the size of California Pop: 127 million Natural resources: few; fish GDP/capita = $13,600 GDP/capita = $30,400 life expectancy = 76.9 yrs life expectancy = 81.15 yrs literacy rate = 97.1 % literacy rate = 99% _________________________________________________________ Country C -- Russia Country D -- Singapore Size: 1.8 times the size of US (land mass) Size: 3.5 times bigger than Wash, DC Pop: 143 million Pop: 4 million Natural Resources: tons! Oil, natural Natural Resources: not many Gas, coal, timber (vast supplies) GDP/capita = $10,700 life expectancy = 67.1 yrs literacy rate = 99.6% GDP/capita = $29,700 life expectancy = 81.62 yrs literacy rate = 92.5%
  15. 15. Bonus Nation • Size: Twice the size of CA • Population: very large, 130 million + • Natural Resources: vast: oil, tin, iron ore, coal, limestone, lead, zinc, natural gas
  16. 16. Bonus Nation • Size: Twice the size of CA • Population: very large, 130 million + • Natural Resources: vast: oil, tin, iron ore, coal, limestone, lead, zinc, natural gas Nigeria: • Per capital GDP: $1,400 2005 • Life Expectancy: 47.08 yrs • Infant Mortality: 97.14 / 1000
  17. 17. What is Productivity?  Production – Process – Transform resources – Intro goods and services  Productivity – Efficient use of resources – Ratio: Total output to specific input – Labor productivity • Output per unit of labor
  18. 18. Labor Productivity • Why is this important? • When does it increase? • With human and physical capital
  19. 19. Per-Worker Production Function (PF) • The PF shows the relationship between the amount of capital per worker in the economy and average output per worker. • Capital deepening: an increase in the amount of capital per worker • One source of rising productivity • Contributes to labor productivity and economic growth
  20. 20. Exhibit 2 LO1 Output per worker Per-Worker Production Function PF y 0 k The per-worker production function, PF, shows a direct relationship between the amount of capital per worker, k, and the output per worker, y. Capital per worker The bowed shape of PF reflects the law of diminishing marginal returns from capital: As more capital is added to a given number of workers, output per worker increases but at a diminishing rate and eventually could turn negative.
  21. 21. Technological Change  Technology – Better quality of capital – Increased productivity – Upward rotation of PF – Higher standard of living
  22. 22. LO1 Exhibit 3 Output per worker Impact of a Technological Breakthrough on the Per-Worker Production Function PF’ y’ PF y 0 k Capital per worker A technological breakthrough increases output per worker at each level of capital per worker. Better technology makes workers more productive. This is shown by an upward rotation of the per-worker production function from PF to PF’. An improvement in rules of the game would have a similar effect.
  23. 23. Two Kinds of Change in Capital Improve Worker Productivity 1) An increase in the QUANTITY of capital per worker – Movement along the per-worker production function. 2) An improvement in the QUALITY of capital per worker – Reflected by technological changes that rotate the PF
  24. 24. Rules of the Game • The formal and informal institutions that promote economic activities: laws, customs, manners, etc. • Stable political environment • Well-define property rights
  25. 25. Freedom Index http://www.fraserinstitute.org/research-news/displa How do countries rate? Does it make a difference in their Economic Growth? http://www.cato.org/pubs/efw/map/index.php
  26. 26. Productivity and Growth in Practice  Industrial market economies – Higher standard of living – 15% of world population – Produce 75% of world’s output  Developing countries – Poor countries – Low standard of living – Less human and physical capital – Low labor productivity
  27. 27. Education and Economic Development  Education – Human capital – Higher productivity  Industrial market economies – Higher education levels  Developing countries – Lower education levels
  28. 28. LO2 Exhibit 4 Percent of Adult Population with at Least a College Education: 2003 and 2006
  29. 29. U.S. Labor Productivity  Annual productivity growth • 2.1% per year, since 1870 (by 1,680%) • Over long periods – Small differences in productivity » Huge differences in standard of living  1948-1973: Golden days; 2.9% per year  1974-1982 Slowdown to 1% – Oil pieces – Legislation  1983: rebound – Information revolution
  30. 30. Exhibit 5 LO2 Long-Term Trend in U.S. Labor Productivity Growth: Annual Average by Decade
  31. 31. LO2 Exhibit 6 U.S. Labor Productivity Growth Slowed During 1974-1982 and Then Rebounded The growth in labor productivity declined from 2.9% per year between 1948 and 1973 to only 1.0% between 1974 and 1982. A jump in the price of oil contributed to three recessions during that stretch, and new environmental and workplace regulations, though necessary and beneficial, slowed down productivity growth temporarily. The information revolution powered by the computer chip and the Internet has boosted productivity in recent years.
  32. 32. How did computers boost productivity? 1) Efficiency gains in the production of computers and semiconductors 2) Greater computer use by industry
  33. 33. Output per Capita  Standard of living – Output per capita – Real GDP per capita  U.S. – General upward trend – During recessions • Decrease in productivity
  34. 34. International Comparisons https://www.cia.gov/library/publications/the-worldCompare Angola with the United States. What is Angola’s GDP per capita, what about the U.S.? Now what is their infant morality rates? (meaning how many babies live to see their first birthday). Is their a quality of life difference?
  35. 35. Quality-of-Life Measures of Development • The GDP measures market transaction, it does not measure differences in living standards. – Demography • • • • Life expectancy at birth Infant mortality rate Illiteracy rate Per capita energy consumption – Economic Freedom • Freedom Index
  36. 36. Technological change • Technological change • Job dislocations can be created- displaced workers • More affordable products, boosting both production and employment • “Does technological change lead to unemployment?” • NO statistical evidence of this.
  37. 37. Research & Development  Basic research  General search for knowledge  First step for technological advancement  Yields a higher return to society  Applied research  Answer particular questions  Develop specific products
  38. 38. Exhibit 10 LO 3 R&D Spending as a Percentage of GDP for Major Economies during the 1980s, 1990s, and 2006
  39. 39. Industrial Policy • Industrial policy • The idea that government, using taxes, subsidies, regulations, and coordination of private sector could help nurture industries. • Concerns • Government efficiency • Giveaway programs
  40. 40. Do Economies Converge? • Convergence theory • Developing countries- they can grow faster than advanced economies • Why? • Adopt existing technologies • Invest in human resources • But, is it happening???

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