# 16_Econ8e_PPT_Ch16

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### Economic growth :

Economic growth Chapter 16 Economics, 8th Edition Boyes/Melvin

### Defining Economic Growth :

Defining Economic Growth Economic growth is an increase in real GDP. Small changes in rates of growth produce big changes over periods of many years because the rate of growth is applied to a growing base every year. This is referred to as compound growth. 2 Copyright © Cengage Learning. All rights reserved.

### Rule of 72 :

Rule of 72 Rule of 72: the number of years required for an amount to double in value is 72 divided by the annual rate of growth. Example: How long does it take for something to double at a rate of growth of 6% per year? 72 ÷ 6 = 12 years 4 Copyright © Cengage Learning. All rights reserved.

### Per Capita Real GDP :

Per Capita Real GDP Economic growth is sometimes defined as an increase in Per Capita Real GDP: the real GDP divided by the population. To measure whether there is more output per person, need to look at the real GDP per person, “per capita”. 6 Copyright © Cengage Learning. All rights reserved.

### Problems with Growth Definitions :

Problems with Growth Definitions Per capita GDP is a useful measure of economic activity in a country, but it is a questionable measure of the typical citizen’s standard of living or quality of life. Despite national economic growth, some groups can be worse off. Real GDP and per capita real GDP say nothing about the distribution of income or the quality of life. 8 Copyright © Cengage Learning. All rights reserved.

### Growth and Potential Real GDP :

Growth and Potential Real GDP Economic growth raises the potentiallevel of real GDP, shifting the long-run aggregate supply curve to the right. Equivalently, economic growth pushes the production possibilities curve outward. 9 Copyright © Cengage Learning. All rights reserved.

### Determinants of Growth :

Determinants of Growth Size and quality of the labor force More and/or better workers can produce more. Capital More and better equipment, tools, and factories allow producers to increase output, and better utilize labor. Land Land surface, water, forests, minerals, and other natural resources are all considered land. Natural resources are not a necessary condition for economic growth because they may be acquired through trade. Technology Technological advances allow the production of more output from a given amount of resources. 11 Copyright © Cengage Learning. All rights reserved.

### Productivity :

Productivity Total Factor Productivity (TFP) is the ratio of the economy’s output to its stock of labor and capital. The greater the TFP, the greater the potential output from other resources. economic growth = growth rate of TFP + growth rate of resources 13 Copyright © Cengage Learning. All rights reserved.