4. Literacy and widespread education
CHAPTER 15 • without highly educated scientists &
macroeconomic objectives inventors, new technologies do not get
developed
ECONOMIC GROWTH • without highly educated workforce, it is
• economic growth: impossible to put technologies into
o increase in real GDP productive use
o increase in real GDP per capita 5. Free trade
• promotes economic growth by allowing
GROWTH AS A GOAL countries to specialize
• expansion of total output relative to • promotes the rapid spread of new ideas so
population results in rising real wages, that innovations made in one country quickly
incomes and higher standards of living spread to other countries
• economy experiencing economic growth is 6. A competitive market system
better able to meet people’s wants and
• under market system, prices and profits serve
resolve socioeconomic problems
as signals that tell firms what and how much
• growth lessens burden of scarcity to make
o growing economy can consume more
today while increasing its capacity to
MAIN SOURCES OF GROWTH
produce more in the future
1. Supply
ARITHMETIC OF GROWTH • any increases in these supply factors will
increase potential size of economy’s GDP:
• rule of 70: method for determining number of
o quantity & quality of natural
years it will take for some measure to double,
resources
given its annual percentage increase
o quantity & quality of human
• rule of 70 provides quantitative grasp of
resources
effect of economic growth
o supply of capital goods
• approximate number of years required to
!"
o improvements in technology
double real GD = #$$%#& % )#*+ ,- .),/*0
2. Demand factor
• economic growth requires increases in total
INSTITUTIONAL STRUCTURES THAT PROMOTE spending to realize output gains made
ECONOMIC GROWTH
possible by increased production capacity
1. Strong property rights • when demand condition is met, there will be
• people will not invest if they believe that no unplanned increases in inventories and
someone will steal their investments/ resources will remain fully employed
expected returns 3. Efficiency factor
2. Patents and copyrights • economy must achieve economic efficiency in
• patents and copyrights provide strong addition to full employment to maximize
financial incentive to invent and create amount of satisfaction that can be derived
3. Efficient financial institutions from scarce resources
• institutions channel household savings • productive efficiency: to maximize well-
toward businesses, entrepreneurs and being, econ must use resources in least
investors that do most of society’s investing costly way
and inventing • allocative efficiency: to produce specific mix
of goods + services that maximizes people’s
utility
1
, LABOUR AND PRODUCTIVITY IS GROWTH DESIRABLE AND SUSTAINABLE
• labour: people’s physical and mental talents 1. The antigrowth view
and efforts that are used to help produce • industrialization and growth result in
goods and services pollution, climate change, species extinction
• labour productivity: average product of and other environmental problems
labour or output per hour of work • the more rapid our growth and the higher our
• society can increase real output and income stand of living, the more waste the
in two ways: environment must attempt to absorb
o increasing inputs of resources • there is little compelling evidence that
o raising productivity of those inputs economic growth has solved social problems
o real GDP = hours of work x labour • while growth may permit us to make a better
productivity living it does not give us the good life
• doubt that high rates of growth are
GROWTH IN SOUTH AFRICA sustainable
• higher rates of economic growth simply
speed up degradation and depletion of
earth’s resources
2. In defence of economic growth
• believe that it’s the path to greater material
abundance and higher living standards
desired by vast majority of people
• growth enabled society too improve nation’s
infrastructure, enhance care of sick and
elderly, provide greater access for disabled
MODERN ECONOMIC GROWTH and provide more police and fire protection
THE UNEVEN DISTRIBUTION OF GROWTH • only realistic way to reduce poverty because
there is only limited political support for
greater redistribution of income
• hasn’t made labour more unpleasant
• no guarantee that end to economic growth
will reduce materialism and worker alienation
• economic growth need not threaten the
environment
• economic growth has allowed economies to
• income levels around the world were very preserve wilderness, create national parks
similar in 1820 and monuments, clean up hazardous waste
• different because certain areas began while still enabling rising household incomes
experiencing econ growth earlier than others • growth is sustainable
CATCHING UP IS POSSIBLE THE BUSINESS CYCLE
• because people can adopt technology more
quickly than they can invent it
• richest countries are rich because they
employ most advanced productive tech
• poorer countries can grow much faster
because they can adopt existing technologies
2
CHAPTER 15 • without highly educated scientists &
macroeconomic objectives inventors, new technologies do not get
developed
ECONOMIC GROWTH • without highly educated workforce, it is
• economic growth: impossible to put technologies into
o increase in real GDP productive use
o increase in real GDP per capita 5. Free trade
• promotes economic growth by allowing
GROWTH AS A GOAL countries to specialize
• expansion of total output relative to • promotes the rapid spread of new ideas so
population results in rising real wages, that innovations made in one country quickly
incomes and higher standards of living spread to other countries
• economy experiencing economic growth is 6. A competitive market system
better able to meet people’s wants and
• under market system, prices and profits serve
resolve socioeconomic problems
as signals that tell firms what and how much
• growth lessens burden of scarcity to make
o growing economy can consume more
today while increasing its capacity to
MAIN SOURCES OF GROWTH
produce more in the future
1. Supply
ARITHMETIC OF GROWTH • any increases in these supply factors will
increase potential size of economy’s GDP:
• rule of 70: method for determining number of
o quantity & quality of natural
years it will take for some measure to double,
resources
given its annual percentage increase
o quantity & quality of human
• rule of 70 provides quantitative grasp of
resources
effect of economic growth
o supply of capital goods
• approximate number of years required to
!"
o improvements in technology
double real GD = #$$%#& % )#*+ ,- .),/*0
2. Demand factor
• economic growth requires increases in total
INSTITUTIONAL STRUCTURES THAT PROMOTE spending to realize output gains made
ECONOMIC GROWTH
possible by increased production capacity
1. Strong property rights • when demand condition is met, there will be
• people will not invest if they believe that no unplanned increases in inventories and
someone will steal their investments/ resources will remain fully employed
expected returns 3. Efficiency factor
2. Patents and copyrights • economy must achieve economic efficiency in
• patents and copyrights provide strong addition to full employment to maximize
financial incentive to invent and create amount of satisfaction that can be derived
3. Efficient financial institutions from scarce resources
• institutions channel household savings • productive efficiency: to maximize well-
toward businesses, entrepreneurs and being, econ must use resources in least
investors that do most of society’s investing costly way
and inventing • allocative efficiency: to produce specific mix
of goods + services that maximizes people’s
utility
1
, LABOUR AND PRODUCTIVITY IS GROWTH DESIRABLE AND SUSTAINABLE
• labour: people’s physical and mental talents 1. The antigrowth view
and efforts that are used to help produce • industrialization and growth result in
goods and services pollution, climate change, species extinction
• labour productivity: average product of and other environmental problems
labour or output per hour of work • the more rapid our growth and the higher our
• society can increase real output and income stand of living, the more waste the
in two ways: environment must attempt to absorb
o increasing inputs of resources • there is little compelling evidence that
o raising productivity of those inputs economic growth has solved social problems
o real GDP = hours of work x labour • while growth may permit us to make a better
productivity living it does not give us the good life
• doubt that high rates of growth are
GROWTH IN SOUTH AFRICA sustainable
• higher rates of economic growth simply
speed up degradation and depletion of
earth’s resources
2. In defence of economic growth
• believe that it’s the path to greater material
abundance and higher living standards
desired by vast majority of people
• growth enabled society too improve nation’s
infrastructure, enhance care of sick and
elderly, provide greater access for disabled
MODERN ECONOMIC GROWTH and provide more police and fire protection
THE UNEVEN DISTRIBUTION OF GROWTH • only realistic way to reduce poverty because
there is only limited political support for
greater redistribution of income
• hasn’t made labour more unpleasant
• no guarantee that end to economic growth
will reduce materialism and worker alienation
• economic growth need not threaten the
environment
• economic growth has allowed economies to
• income levels around the world were very preserve wilderness, create national parks
similar in 1820 and monuments, clean up hazardous waste
• different because certain areas began while still enabling rising household incomes
experiencing econ growth earlier than others • growth is sustainable
CATCHING UP IS POSSIBLE THE BUSINESS CYCLE
• because people can adopt technology more
quickly than they can invent it
• richest countries are rich because they
employ most advanced productive tech
• poorer countries can grow much faster
because they can adopt existing technologies
2
