copyright © 2010 pearson addison-wesley. all rights reserved. chapter 9 global economic growth and...

Copyright © 2010 Pearson Addison-Wesley. All rights reserved.

Chapter 9

Global Economic Growth and Development


9-2

Introduction

What do Australia, Bulgaria, Germany, and Japan all have in common?

The answer is that they are among more than 20 nations throughout the world that now off significant financial incentives for women to bear children.

Their objective is to provide a stronger foundation for future economic growth.

In this chapter, you will learn about the measurement of economic growth, about the importance of growth rates, and about the key factors that determine economic growth.


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Learning Objectives

• Define economic growth

• Recognize the importance of economic growth rates

• Explain why productivity increases are crucial for maintaining economic growth

• Discuss the fundamental factors that contribute to a nation’s economic development


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Figure 9-1

Distance of shiftrepresents an increasein productive capacity

How Do We Define Economic Growth?


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How Do We Define Economic Growth? (cont'd)

• Economic Growth

– Increase in per capita real GDP measured by its rate of change per year


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Figure 9-2 The Historical Record of U.S. Economic Growth

Source: U.S. Department of Commerce.


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Growth: Better, more affordable shelter


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Growth: More comfort


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Growth: Same Big Mac, but more affordable


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• Is economic growth bad?

– Some psychologists contend that growth makes us worse off.

– As with all activities there are costs along with benefits to growth.

• Question

– If your leisure time increases 1 hour/week and your commute time to work increases by 2 hours/week, are you better off?


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Table 9-2 Costs and Benefits of Economic Growth


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Table 9-3 One Dollar Compounded Annually at Different Interest Rates

A small difference can make a big difference in growth


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• The Rule of 70– A rule stating that the appropriate number of

years required for per capital real GDP to double is equal to 70 divided by the average rate of economic growth

– Exercise:– Growth = 2%, years to double = ?– Growth = 3.5%, years to double = ?


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Economic growth = Rate of growth of capital + Rate of growth of labor +Rate of growth in the productivityof capital and of labor

Productivity Increases: The Heart of Economic Growth

• Labor Productivity

– Total real domestic output (real GDP) divided by the number of workers (output per worker)


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Saving: A Fundamental Determinant of Economic Growth

• To have more consumption in the future, you must consume less today and save the difference between your consumption and your income.

• Key: Present vs. Future


9-17Source: World Bank.

Figure 9-4 Relationship Between Rate of Saving and Per Capita Real GDP


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Economic Development (cont'd)

• The relationship between population growth and economic development

– Growth leads to smaller families, lower birth rates.

– The more economic development occurs, the slower the population growth rate.

– Birth rates decline with modernization.• Reduced infant mortality• People do not rely on children to take care of them in

old age• Why a conflict between work and having babies?


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Economic Development (cont'd)

• Keys to economic development

– Establishing a system of property rights

– Developing an educated population (not high population growth)

– Letting “creative destruction” (free market) run its course

– Limiting protectionism (opposite of free trade)


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Figure 9-6 The Relationship Between Economic Growth and Tariff Barriers to International Trade

Source: World Bank.


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Myth #9: Life is worst today, why me?

• Sure, let’s send you back to the 1950s (go-go years)…pick a year yourself

• You can’t find a laptop, cell phone, DVD, iPod, can drinks (only in glass bottles)

• You have to work half an hour to pay for a burger (but 10 minutes today)

copyright © 2010 pearson addison-wesley. all rights reserved. chapter 9 global economic growth and...

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