1 / 93

Growth, Productivity, and the Wealth Of Nations

Growth, Productivity, and the Wealth Of Nations. Chapter 8. Laugher Curve. We have two classes of forecasters: Those who don't know, and those who don't know they don't know. John Kenneth Galbraith. General Observations about Growth. Growth increases the economy’s potential output.

shima
Télécharger la présentation

Growth, Productivity, and the Wealth Of Nations

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Growth, Productivity, and the Wealth Of Nations Chapter 8

  2. Laugher Curve We have two classes of forecasters: Those who don't know, and those who don't know they don't know. John Kenneth Galbraith

  3. General Observations about Growth • Growth increases the economy’s potential output.

  4. Growth and the Economy’s Potential • Growth is an increase in the amount of goods and services an economy produces. • Growth is an increase in potential output.

  5. Growth and the Economy’s Potential • Potential output – the highest amount of output an economy can produce from the existing production function and existing resources. • When an economy is at its potential output, it is operating on its production possibility curve.

  6. Growth and the Economy’s Potential • Long-run growth focuses on supply. • It assumes Say’s Law – supply creates its own demand.

  7. Growth and the Economy’s Potential • In the short run, economists consider potential output fixed. • They focus on how to get the economy operating at its potential if it is not.

  8. Importance of Growth for Living Standards • Growth improves living standards. • It makes more goods available to more people. • Because of compounding, long-term growth rates matter a lot.

  9. Importance of Growth for Living Standards • The Rule of 72 is used to determine how long it takes for income to double at different growth rates. • The Rule of 72 – the number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of increase.

  10. Markets, Specialization, and Growth • Markets, specialization and the division of labor increase productivity and growth. • Specialization – the concentration of individuals on certain aspects of production • Divisionof labor – the splitting up of a task to allow for specialization of production.

  11. Economic Growth, Distribution, and Markets • Markets are often seen to be unfair because of the effect they have on the distribution of income.

  12. Economic Growth, Distribution, and Markets • Markets may not provide equality of income but they make the poor better off. • There is strong evidence that the poor benefit enormously from the growth that markets foster.

  13. Economic Growth, Distribution, and Markets • Just because the poor benefit from growth does not mean they might not be better off if income were distributed more in their favor.

  14. Milk (½ gallon) Beef (1 pound) 1919 Eggs (1 dozen) Bread (1 pound) Chicken (3 lb. fryer) Milk (½ gallon) Beef (1 pound) 1997 Eggs (1 dozen) Bread (1 pound) Chicken (3 lb. fryer) 0 50 100 150 200 Price in minutes of work Cost of Goods in Hours of Work

  15. Per Capita Growth • Per capita output is total output divided by total population. • Per capita growth means producing more goods and services per person.

  16. Per Capita Growth • Per capita growth equals the percent change in output minus the percent change in population Per capita growth = % change in output - % change in population

  17. Per Capita Growth • In many developing nations, the population is rising faster than GDP, resulting in a lower per capita growth rate.

  18. Per Capita Growth • Some economists have argued that per capita (mean) output is not what we should be focusing on. • We should focus on median income instead.

  19. Per Capita Growth • Median income is a better measure because it takes into account how income is distributed.

  20. Per Capita Growth • If the growth in income goes mostly to a small minority of individuals, the mean will rise but the median will not. • Because statistics on median income is generally not collected, economists use per capita income.

  21. The Sources of Growth • Economists identify five important sources of growth: • Capital accumulation – investment in productive capacity. • Available resources. • Growth compatible institutions. • Technological development. • Entrepreneurship.

  22. Investment and Accumulated Capital • Years ago it was thought that physical capital and investment were the keys to growth. • The flow of investment lead to the growth of the stock of capital.

  23. Investment and Accumulated Capital • Capital accumulation does not necessarily lead to growth. • Products change, and useful buildings and machines in one time period may be useless in another.

  24. Investment and Accumulated Capital • Capital is much more than machines – it includes human and social capital. • Human capital – the skills that are embodied in workers through experience, education, on-the-job training. • Social capital – the habitual way of doing things that guides people in how they approach production.

  25. Investment and Accumulated Capital • All economists agree that the right kind of investment at the right time is a central element of growth.

  26. Available Resources • For an economy to grow it will need resources. • What constitutes a resource at one time may not be a resource at another time.

  27. Available Resources • Technology plays an enormous role here. • Greater participation in the market is another way by which available resources are increased.

  28. Growth-Compatible Institutions • Markets and private ownership of property foster economic growth. • When individuals get much of the gains of growth themselves, they work harder.

  29. Growth-Compatible Institutions • Another growth-compatible institution is the corporation. • Because of limited liability, corporations give owners and incentive to invest their savings in large enterprises.

  30. Growth-Compatible Institutions • Mercantilist economic policies inhibit economic growth.

  31. Technological Development • Growth isn’t just getting more of the same thing. • It’s also getting some things that are different.

  32. Technological Development • Growth involves changes in technology. • Technology – changes the way we make goods and supply services, and in the goods and services we buy.

  33. Entrepreneurship • Entrepreneurship is the ability to get things done. • That ability involves creativity, vision, and a talent for translating that vision into reality.

  34. Turning the Sources of Growth into Growth • In order to be effective, the five sources of growth must be mixed in the right proportions.

  35. Turning the Sources of Growth into Growth • It is the combination of investing in machines, people, and technological change that plays a central role in the growth of any economy.

  36. The Production Function and Theories of Growth • The production function shows the relationship between the quantity of inputs used in production and the quantity of output resulting from production.

  37. The Production Function and Theories of Growth • The production function for growth has land, labor, and capital as factors of production. • “A” is an adjustment factor that captures the effect of technology. Output = A• f(Labor, Capital, Land)

  38. Describing Production Functions • Scale economies describe what happens in a production function when all inputs increase equally. • Constant returns to scale. • Increasing returns to scale. • Decreasing returns to scale.

  39. Describing Production Functions • Constant returns to scale means that output will rise by the same proportionate increase in all inputs.

  40. Describing Production Functions • Increasing returns to scale occurs when output rises by a greater proportionate increase as all inputs.

  41. Describing Production Functions • Decreasing returns to scale occurs when output rises by a smaller proportionate increase as all inputs.

  42. Describing Production Functions • Diminishing marginal productivity describes what happens when more of one input is added without increasing any other inputs.

  43. Describing Production Functions • The law of diminishing marginal productivitystates that increasing one output, keeping all others constant, will lead to smaller and smaller gains in output.

  44. The Classical Growth Model • The Classical growth model focuses on capital accumulation in the growth process. • The more capital an economy has, the faster it will grow. • Because of this emphasis on capital, market economies are called capitalist economies.

  45. The Classical Growth Model • Classical economists focused their analysis and their policy advice, on how to increase investment: savings Þ investment Þ increases in capital Þ growth

  46. Focus on Diminishing Marginal Productivity of Labor • The Classical growth model focused on how diminishing marginal productivity of labor placed limitations on growth. • Farming was the major economic activity and land was relatively fixed.

  47. Focus on Diminishing Marginal Productivity of Labor • Since land was fixed, diminishing marginal productivity would set in as population grew. • As output per person declines, at some point available output is no longer sufficient to feed the population.

  48. Focus on Diminishing Marginal Productivity of Labor • This belief is called the iron law of wages. • The long run was called the stationary state.

  49. Subsistence level of output per worker Output Production function Q2 Q1 L1 L* Labor Diminishing Returns and Population Growth

  50. Diminishing Marginal Productivity of Capital • The predictions of the stationary state turned out to be wrong. • Increases in technology and capital overwhelmed the law of diminishing marginal productivity.

More Related