AREC445 Chapter 3 Outline

AREC445 Chapter 3 Outline - AREC445 Chapter 3 Outline-...

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AREC445 Chapter 3 Outline- Economic Growth: Concepts and Patterns Up until 500 years ago most people lived in conditions that we would now consider poverty The beginning of the twenty first century was when this changed The majority of the worlds population continues to live in poverty Economic growth is at the heart of the development process Divergent Patterns of Economic Growth Since 1960 Most of the rapidly growing countries are in East Asia, while most of the slowly growing countries are in Africa In more than 25 developing countries, real incomes more than doubled since 1960, only half of which are in Asia Apparently small differences in growth rates can make a huge difference, especially over time Factor Accumulation, Productivity Growth, and Economic Growth Factors playing an important role in growth: amount and type of investment, education and health care systems, natural resources and geographical endowments, the quality of government institutions, and the choice of public policy At the core of economic growth is a relationship between the basic factors of production-capital and labor-and total economic production Focus is on capital and labor A country’s total output-and thus its total income-is determined by how much capital and labor it has available and how productively it uses these assets Increasing the amount of production-economic growth-depends on increasing the amount of capital and labor available and increasing productivity of those assets Economic growth depends on two basic processes: o Factor accumulation-increasing the size of the capital stock or the labor force o Productivity growth- increasing the amount of output produced by each machine or worker-Increased in two ways: Improve efficiency with which current factors are being used Technological change-productivity growth often entails shifting resources from producing one good to another The production function characterizes how inputs (capital and labor) are combined to produce various levels of output-increasing the amount of capital available for each worker is seen as the key to growth Factor accumulation and productivity gains are at the heart of the growth process Saving, Investment, and Capital Accumulation The most influential model of economic growth was developed by Robert Solow, the Solow Model, as well as other influential growth models is the process of capital accumulation The key in these kinds of models: o New investment increases the capital stock-investment in new factories or machines directly increases capital stock which facilitates greater
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production o Investment is financed by saving- key to increasing investment and thus capital stock is to increase saving o Saving comes from current income Gross domestic saving, which combines household savings, corporation savings, and government savings provides the resources to finance investment A key decision facing these three is how much income to consume and how much
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AREC445 Chapter 3 Outline - AREC445 Chapter 3 Outline-...

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