Ch. 18: Economic Growth

Gr. 12 Economics

M. Nicholson

Economic Growth

Increase in the total output of goods & services

Real GDP adjusted for inflation whole economy’s growth capacity

Real GDP per capita individual’s growth living standards

Production Possibility Curve

Capital vs. Consumer Goods

Saws vs. Bread Saws short term pain, but long term gain Bread short & long term no pain or gain Capital economic growth in future, but

less consumer goods in present Exponential growth builds on itself Rule of 72 72 % growth rate = double

Economic Growth In Canada

1870 – 1914 $1713 - $3917 per capita GDP (Pre-World War 1)

1914 – 1945 $3917 - $7291 (Interwar Period)

1945 – 1993 $7291 - $19,084 (Postwar Period)

Sources of Economic Growth

Labour Productivity real output / hours

1. Quantity of capital

2. Technological progress

3. Quality of labour

4. Efficiency in production

5. Quality of natural resources

6. Social and political factors

The Debate Over Growth

Arguments for Economic Growth

1. Living standards

2. Social improvements

3. Psychological benefits

The Debate Over Growth cont’d

Arguments Against Economic Growth

1. Opportunity cost of growth

2. Environmental costs

3. Social costs

Economic Development

World Bank international bank for reconstruction and development

High-Income Countries Per capita GNP $7911 US or more

Middle Income Countries $636 - $7910 US per capita GNP

Low-Income Countries $0 - $635 US per capita GNP

Poverty and Wealth

Points of Comparison

Per capita income $1 vs. $21, 000 Health & social indicators 62 yrs vs.

77yrs Energy consumption H.I. 14 x > L.I. Asian nations (e.g. China) massive

growth narrowing gap with rich Many sub-Saharan & Latin American

countries further behind the rich

The Dynamics of Development

Per capita income ↑ living standards ↑ Vicious circle of poverty low per capita

income low investment in capital & human resources labour-intensive production (rapid population growth) low productivity low income

Strategies for development

Political & economic stability Investing in human & capital resources

need good gov’t higher savings Trade liberalization Foreign aid Population control