Economics 13-4

Economic Growth

pages 363-368

ECONOMIC GROWTH

ESSENTIAL QUESTIONS:• What are two measures of economic growth?

•Why is economic growth important?

•What are the factors influencing economic growth?

•How does productivity relate to economic growth?

ECONOMIC GROWTH

GPS STANDARDS:

SSEMA1- Describe the means by which economic activity is measured.

b.) Define economic growth……

l ECONOMIC GROWTH

• The ability of an economy to produce output determines its growth.

• Economic growth, one of the seven major goals of the United States economy, has the potential for improving everyone’s lot in life.

•Everyone includes not only every American, but also people living in other countries.

l ECONOMIC GROWTH

• Beginning in 1991, the United States enjoyed the longest period of prosperity in its history, with the economy growing at a robust 3.9 percent in 1999.

• Economic growth is best measured by real GDP per capita.

• Real GDP per capita- is GDP adjusted for inflation and divided by the total population

l ECONOMIC GROWTH

• Why is it important to look at per capita rather than total GDP?

• It shows how much output increased per person.

•If the population grows more rapidly than the economy, per capita GDP will fall and people will be worse off on average than they were the previous year, even if the economy grows.

l Importance of Economic Growth

• Economic growth increases the standard of living.

• Economic growth increases the tax base, allowing the government to provide more and better-quality public services.

•Economic growth helps reduce poverty and related problems.

l Importance of Economic Growth

• Economic growth increases U.S. demand for imports, which helps create jobs and generate income in foreign countries.

• Economic growth in the United States encourages other countries to adopt market economies.

l Importance of Economic Growth

• How does economic growth increase the standard of living?

• When the economy grows, unemployment falls and incomes rise.

•The standard of living rises because people are able to purchase more goods and better services.

Factors Influencing Economic Growth• Natural (and renewable) resources, including land and minerals, contribute to economic growth.

•A high capital-to-labor ratio contributes to economic growth.

• Skilled and growing labor force contributes to economic growth.

•Entrepreneurs contribute to economic growth.

Factors Influencing Economic Growth• Prior to the current recession, how do economists explain the very large increase in productivity over the previous years (especially in the 1990s)?

•Information technology, including computers and the Internet, have made businesses more efficient.

Factors Influencing Economic Growth• What are the factors that influence economic growth?

The factors influencing economic growth are: • Land• Labor • Capital • Entrepreneurs

Factors Influencing Economic Growth• How does productivity relate to economic growth?

• Productivity is essential for economic growth.

• When productivity increases, the prices of goods and services tend to stay low, and domestic employment expands.

•When productivity decreases, prices can rise, and unemployment in domestic industries can rise.

Factors Influencing Economic Growth• Why is productivity important to a nation’s standard of living?

• It keeps the price levels down and industries running.

• Consumers continue to buy products and workers continue to earn salaries that enable them to buy.

Pages 363-368