Econ Module 8 Economic Growth and Wealth of Nations
Which of the following would lead to an increase in long-run economic growth in a nation?
an increase in resources and technology.
Nominal gross domestic product (GDP) is a poor measure of economic growth because it
does not consider changes in prices or population growth.
Brain drain
Economically defined, brain drain occurs when skilled professionals emigrate out of a country.
If per capita real gross domestic product (GDP) in a nation increases by 2 percent from one year to the next, how long will it take real per capita GDP to double if it maintains that growth rate?
35 years.
In 2011, per capita real gross domestic product (GDP) in Mexico was roughly $10,000. If Mexico experienced economic growth of 4.8 percent in 2012, per capita real GDP would increase to
$10,480
In 2015, Canada's gross domestic product was roughly $1.6 trillion. Given that Canada's population was roughly 36 million people, per capita GDP in Canada was roughly
$44,444
Result of brain drain
- A country might lose its most productive workers and suffer slowed growth as a result.
Suppose annual growth is 2%. How long will it take for the economy to grow by 100%?
- Compounding growth actually makes it occur faster than 50 years. - It takes about 35 years. - "Rule of 70" • If the annual growth rate is 𝑋%, the size of that variable doubles every 70 / 𝑋 years.
Specialization and trade
- Creates value and allows countries to consume goods they cannot produce on their own. - Output (GDP) increases when countries produce goods in which they have the comparative advantage (lowest opportunity cost).
Benefits to society
- Creative destruction occurs and new technologies replace outdated methods. This fuels economic growth. - Only the fittest firms survive, so inefficiency is eliminated over time. - Innovation is encouraged.
How long will it take income to double?
- Income doubling is significant and will not happen in a single year
Technological advance
- Introduction of new knowledge or production techniques - "Produce more for less" - Classic example: Henry Ford's assembly line - Agricultural advances allow us to grow more food per acre
Characteristics of competitive markets
- It is easy for firms to enter and exit with few licensing or regulatory hurdles. - Buyers can expect to find low prices and wide availability of goods.
Technology
- Knowledge available for use in production
Uncertainty about future prices
- Makes people reluctant to invest - Decreases future growth possibilities
Why does brain drain happen?
- People may want to move to a country with more opportunities or higher pay. - Regulations or laws may force people to move away.
Institutions
- Significant practice, relationship, or organization - Conditions in which decisions are made - Include laws, regulations, and government - Also include work habits, expectations, and political behavior
Growth rate of real GDP per capita
- The most important growth rate we consider - Change in average person's income, adjusting for inflation
Taxes represent a trade-of
- They must be high enough to support effective government. - Taxes change incentives by doing less of the activity that is taxed. Often, wages and output are taxed. - Import tariffs also impede growth.
Capital
- Tools and equipment used in the production of goods and services - Factories, computers, roads - Example: the standardized shipping container revolutionized world trade - The most developed countries have impressive roads, bridges, tools, and computer networks
GDP
-Basic measure of a nation's income -Value of all final goods and services produced in a country -GDP per capita is a basic measure of average living standards
The period in time in which per capita GDP for the world started to increase faster than it had in the rest of history began during what years?
1800s
Economic growth
-The growth rate of GDP per capita
Important institutions for economic growth
1. Political stability and rule of law 2. Private property rights 3. Stable money and prices 4. Competitive markets 5. Efficient taxes 6. International trade 7. Flow of funds across borders
If the annual growth rate of an economy is 7%, how long will it take for income to double?
10 years
Average world income began to increase rapidly during the
Industrial Revolution.
Resources are the inputs used to produce goods and services
Labor - Represents workers in an economy Effective labor - Labor adjusted for training and education - Training includes everything from literacy to specific job training - A more educated workforce is generally more productive
Resources are the inputs used to produce goods and services.
Land - Physical land, natural resources • Coal in United States • Oil in Saudi Arabia • Lumber in Canada
If an economy experiences economic growth, does that mean that everyone in that economy will be better off?
No, it means that the average person is better off.
A(n) ________ in capital goods would _________ worker productivity.
increase; increase
A(n) ________ in human capital would ________ worker productivity.
increase; increase
When economists use the phrase "economic growth," what are they referring to?
percentage changes in real GDP per capita
Economic growth is defined as the percentage change of
real gross domestic product per capita.
Higher rates of real per capita gross domestic product are negatively correlated with
shorter life expectancy.
As they relate to economic growth, institutions are
significant practices, relationships, or organizations in society.
The sources of economic growth are:
• Resources • Technology • Institutions