Chapter 26

Chapter 26 - Chapter 26: Long-Run Economic Growth 26.1 The...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 26: Long-Run Economic Growth 26.1 The Nature of Economic Growth Sustained increased in real GDP are due mainly to economic growth, which continuously pushes the Y* curve outward, thereby increasing potential output. Growth is frequently measured by using rates of change of potential real GDP per person. The cumulative effects of even small differences in growth rates become very large over periods of a decade or more. Three (3) variables in the Canadian economy: 1. Real GDP : It’s an acceptable measure of the amount of annual economic activity, but it is not a good measure of average material living standards because it does not take into account growth in the population 2. Real per capita GDP : one of the most important reasons that both GDP and per capita GDP increase over many years in growth in productivity 3. Real GDP per employer worker : measure of productivity Economic growth: sustained, long run increases in the level of real GDP Benefits of Economic Growth The most important benefit of growth lies in its contribution to the long-run struggle to raise living standards and to escape poverty. Growth also facilitates the redistribution of income among people. Growth, though even beneficial, is never costless. The opportunity cost of growth is the diversion of resources from current consumption to capital formation. For individuals who are left behind in a rapidly changing world, the costs are higher and more personal. It is important to distinguish between the increases in average living standards that economic growth brings more or less automatically, and the reduction in poverty that economic growth makes possible but may still require active policy to make a reality. Rising Average Material Living Standards Increases in income can lead to changes in the pattern of consumption - Extra money buys important amenities of life and also allow more savings for the future - Can also involve environmental protection o Developing countries focus on providing basic requirements of life and do not have the “luxury” of being concerned about environmental degradation Alleviation of Poverty Many of the poorest members of the population are not even in the labour force and hence are unlikely to share in the higher wages that, along with profits, are the primary means by which the gains from growth are distributed For this reason, even in a growing economy, redistribution policies will be needed if poverty is to
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
be reduced A rapid growth rate makes the alleviation of poverty easier politically When there’s economic growth and when the increment in income is redistributed, it’s possible to reduce income inequalities without actually having to lower anyone’s income o It is much easier for a rapidly growing economy to be generous towards its less fortunate citizens than it is for a static economy Cost of Economic Growth The Opportunity Cost of Economic Growth Growth requires heavy investment of resources in capital goods, as well as in activities such as
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/17/2008 for the course ECON 295 taught by Professor Ragan during the Winter '08 term at McGill.

Page1 / 8

Chapter 26 - Chapter 26: Long-Run Economic Growth 26.1 The...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online