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Chapter 18 Lecture Notes


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CHAPTER EIGHTEEN ECONOMIC GROWTH INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Define economic growth in two different ways. 2. Explain why economic growth is important to any economy. 3. Identify four supply factors and two other major factors in economic growth. 4. Describe the growth record of the U.S. economy since 1940, including two measures of its long-term growth rates. 5. Show economic growth using production possibilities analysis and aggregate demand-aggregate supply analysis. 6. Identify two factors that contributed the most to U.S. economic growth according to empirical studies, and list six other factors that were also instrumental in this achievement. 7. Identify three principal implications of the labor productivity slowdown experienced in the U.S. 8. Identify five probable causes of the labor productivity slowdown experienced in the U.S. 9. List five reasons for the resurgence of productivity growth in the United States. 10. Outline briefly three approaches to growth policies. 11. Define and identify terms and concepts at the end of the chapter. LECTURE NOTES I. Growth Economics—how to increase the economy’s productive capacity over time. A. Two definitions of economics growth are given. 1. The increase in real GDP, which occurs over a period of time. 2. The increase in real GDP per capita, which occurs over time. This definition is superior if comparison of living standards is desired. B. Growth is an important economic goal because it means more material abundance and ability to meet economizing problem. Growth lessens the burden of scarcity. C. The arithmetic of growth is impressive. Using the “rule of 70,” a growth rate of 2 percent annually would take 35 years for GDP to double, but a growth rate of 4 percent annually would only take about 18 years for GDP to double. II. Causes or Ingredients of Growth A. Four supply factors relate to the ability to grow. 1. The quantity and quality of natural resources, 2. The quantity and quality of human resources, 3. The supply or stock of capital goods, and 4. Technology. 227
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Economic Growth B. Demand and efficiency factors are also related to growth. 1. Aggregate demand must increase for production to expand.
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