Lecture%20Ch%2012 - 12 PRODUCTION AND GROWTH Note: We are...

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220 Note: We are also discussing Economic Growth (Chapter 7) of Cowen/Tabarrok. See your syllabus for reference. You don’t need to buy the book. My lecture in class will be sufficient. LEARNING OBJECTIVES: By the end of this chapter, students should understand: how much economic growth differs around the world. why productivity is the key determinant of a country’s standard of living. the factors that determine a country’s productivity. how a country’s policies influence its productivity growth. KEY POINTS: Economic prosperity, as measured by GDP per person, varies substantially around the world. The average income in the world’s richest countries is more than ten times that in the world’s poorest countries. Because growth rates of real GDP also vary substantially, the relative positions of countries can change dramatically over time. The standard of living in an economy depends on the economy’s ability to produce goods and services. Productivity, in turn, depends on the amounts of physical capital, human capital, natural resources, and technological knowledge available to workers. Government policies can try to influence the economy’s growth rate in many ways: encouraging saving and investment, encouraging investment from abroad, fostering education, promoting good health, maintaining property rights and political stability, allowing free trade, and promoting the research and development of new technologies. The accumulation of capital is subject to diminishing returns: The more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, while higher saving leads to higher growth for a period of time, growth eventually slows down as the economy approaches a higher level of capital, productivity, and income. Also because of diminishing returns, the return to capital is especially high in poor countries. Other things being equal, these countries can grow faster because of the catch-up effect. 12 PRODUCTION AND GROWTH
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Chapter 12/Production and Growth 221 Population growth has a variety of effects on economic growth. On the one hand, more rapid population growth may lower productivity by stretching the supply of natural resources and by reducing the amount of capital available for each worker. On the other hand, a larger population may enhance the rate of technological progress because there are more scientists and engineers. CHAPTER OUTLINE: I. Economic Growth Around the World A. Table 1 shows data on real GDP per person for 13 countries during different periods of time. 1. The data reveal the fact that living standards vary a great deal between these countries. 2. Growth rates are also reported in the table. Japan has had the largest growth rate over time,
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This note was uploaded on 11/07/2010 for the course ECONOMICS 212 taught by Professor Gaminde during the Spring '10 term at University of Miami.

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Lecture%20Ch%2012 - 12 PRODUCTION AND GROWTH Note: We are...

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