ch12-1 - PRODUCTIONAND PRODUCTIONAND GROWTH Production and...

PRODUCTION AND
PRODUCTION AND
GROWTH
GROWTH
Production and Growth
1

In this chapter,
In this chapter,
look for the answers to these questions:
look for the answers to these questions:

What are the facts about living standards and
growth rates around the world?

Why does productivity matter for living standards?

What determines productivity and its growth rate?

How can public policy affect growth and living
standards?
2

A typical family with all their possessions
in the U.K., an advanced economy
GDP per capita: $35,580
Life expectancy: 79 years
Adult literacy: 99%

A typical family with all their possessions
in Mexico, a middle income country
GDP per capita: $11,410
Life expectancy: 76 years
Adult literacy: 92%

A typical family with all their
possessions in Mali, a poor country
GDP per capita: $1,130
Life expectancy: 50 years
Adult literacy: 46%

GDP per
capita, 2005
Growth rate,
1960-2005
China $6,572 5.8%
Singapore 29,921 5.4%
Japan 30,821 3.8%
Spain 26,125 3.2%
India 3,486 2.7%
Israel 25,670 2.7%
United States 41,854 2.2%
Canada 32,886 2.1%
Colombia 7,769 1.8%
New Zealand 22,511 1.4%
Philippines 4,920 1.4%
Argentina 14,421 1.0%
Saudi Arabia 14,729 0.8%
Rwanda 1,333 0.3%
Haiti 1,836 –1.2%
Incomes
and Growth
Around the
World
FACT 1:
There are
vast
differences
in living
standards
around the
world.

GDP per
capita, 2005
Growth rate,
1960-2005
China $6,572 5.8%
Singapore 29,921 5.4%
Japan 30,821 3.8%
Spain 26,125 3.2%
India 3,486 2.7%
Israel 25,670 2.7%
United States 41,854 2.2%
Canada 32,886 2.1%
Colombia 7,769 1.8%
New Zealand 22,511 1.4%
Philippines 4,920 1.4%
Argentina 14,421 1.0%
Saudi Arabia 14,729 0.8%
Rwanda 1,333 0.3%
Haiti 1,836 –1.2%
Incomes
and Growth
Around the
World
FACT 2:
There is
also great
variation
in growth
rates across
countries.

PRODUCTION AND GROWTH
8
Incomes and Growth Around the World
Since growth rates vary, the country rankings can
change over time:

Poor countries are not necessarily doomed to
poverty forever – e.g. , Singapore, incomes were
low in 1960 and are quite high now.

Rich countries can’t take their status for granted:
They may be overtaken by poorer but
faster-growing countries.

PRODUCTION AND GROWTH
9
Incomes and Growth Around the World
Questions:

Why are some countries richer than others?

Why do some countries grow quickly while others
seem stuck in a poverty trap?

What policies may help raise growth rates and
long-run living standards?

PRODUCTION AND GROWTH
10
Productivity

Recall one of the Ten Principles from Chap. 1:
A country’s standard of living depends
on its ability to produce g&s.

This ability depends on
productivity , the average quantity of g&s
produced per unit of labor input.

Y = real GDP = quantity of output produced
L = quantity of labor
so productivity = Y / L (output per worker)

PRODUCTION AND GROWTH
11
Why Productivity Is So Important

When a nation’s workers are very productive,
real GDP is large and incomes are high.