sg08 - 8 Why Do Economies Grow? Chapter Summary Economic...

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8 Why Do Economies Grow? Chapter Summary Economic growth is a fundamental goal for an economy because increasing real GDP increases income for the economy, leading to a higher standard of living. The chapter shows how economic growth over time affects how we live our lives differently today than we did 200 years ago. Economic growth is measured to see if real GDP is growing or not. This chapter will explore how growth is measured and the policies that the government uses to promote growth. Capital deepening and technological progress will be discussed in detail. The appendix describes the basic growth model put forth by Nobel laureate Robert Solow. Here are the main points of the chapter: Per capita GDP varies greatly throughout the world. There is debate about whether poorer countries in the world are converging in per capita incomes to richer countries. Economies grow through two basic mechanisms: capital deepening and technological progress. Capital deepening is an increase in capital per worker. Technological progress is an increase in output with no additional increases in inputs. Ongoing technological progress will lead to sustained economic growth. Various theories try to explain the origins of technological progress and determine how we can promote it. These theories include spending on research and development, creative destruction, the scale of the market, induced inventions, and education and the accumulation of knowledge, including investments in human capital. Governments can play a key role in designing institutions that promote economic growth, including providing secure property rights. Applying the Concepts After reading this chapter, you should be able to answer these seven key questions: 1. How does economic growth affect social indicators such as child labor? 2. Does economic growth necessarily cause more inequality? 3. How can we use economic analysis to understand the sources of growth in different countries? 4. Why did labor productivity in the United States fall sharply during the 1970s and 1980s? 5. How did the emergence of the Internet affect economic growth in the United States? 6. How are economic growth and health related to one another? 7. Why are clear property rights important for economic growth in developing countries?
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Why Do Economies Grow? 109 8.1 Economic Growth Rates In Chapter 5, economic growth was defined as sustained increases in the real GDP of an economy over a long period of time. Economic growth can be illustrated with the use of the production possibility curve, as shown in Figure 8.1. To see if economic growth has occurred, we need a means of measurement. There are three forms of measurement, which we discuss next: GDP Real GDP per capita Rule of 70 Since real GDP is the indicator of economic growth, real GDP is a starting point for measuring such growth. A country’s economic growth can be measured from one year to the next using real GDP. If we want to measure how real GDP affects the population, then we need a different measurement. The
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This note was uploaded on 10/25/2009 for the course ECON 81509 taught by Professor X.song during the Spring '09 term at Mesa CC.

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sg08 - 8 Why Do Economies Grow? Chapter Summary Economic...

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