1、,Production and Growth,Chapter 24,Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to: Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.,Production and Growth,A co

2、untrys standard of living depends on its ability to produce goods and services.,Production and Growth,Within a country there are large changes in the standard of living over time.,Production and Growth,In the United States over the past century, average income as measured by real GDP per person has

3、grown by about 2 percent per year.,Production and Growth,Productivity refers to the amount of goods and services produced for each hour of a workers time. A nations standard of living is determined by the productivity of its workers.,The Variety of Growth Experiences,Harcourt, Inc. items and derived

4、 items copyright 2001 by Harcourt, Inc.,Economic Growth Around the World,Living standards, as measured by real GDP per person, vary significantly among nations.,Economic Growth Around the World,The poorest countries have average levels of income that have not been seen in the United States for many

5、decades.,Compounding and the Rule of 70,Annual growth rates that seem small become large when compounded for many years. Compounding refers to the accumulation of a growth rate over a period of time.,Compounding and the Rule of 70,According to the rule of 70, if some variable grows at a rate of x pe

6、rcent per year, then that variable doubles in approximately 70/x years.,An Example of the Rule of 70,$5,000 invested at 7 percent interest per year, will double in size in 10 years 70/ 7 = 10,Why Productivity Is So Important,Productivity plays a key role in determining living standards for all natio

7、ns in the world.,Why Productivity Is So Important,Productivity refers to the quantity of goods and services that a worker can produce from each hour of work.,Why Productivity Is So Important,To understand the large differences in living standards across countries. We must focus on the production of

8、goods and services.,How Productivity is Determined,The inputs used to produce goods and services are called the factors of production. The factors of production directly determine productivity.,The Factors of Production,Physical capital Human capital Natural resources Technological knowledge,The Fac

9、tors of Production,Capital is a produced factor of production. It is an input into the production process that in the past was an output from the production process.,Physical Capital,Physical capital is the stock of equipment and structures that are used to produce goods and services. Tools used to

10、build or repair automobiles. Tools used to build furniture. Office buildings, schools, etc.,Human Capital,Human capital is the economists term for the knowledge and skills that workers acquire through education, training, and experience. Like physical capital, human capital raises a nations ability

11、to produce goods and services.,Natural resources are inputs used in production that are provided by nature, such as land, rivers, and mineral deposits. Renewable resources include trees and forests. Nonrenewable resources include petroleum and coal.,Natural Resources,Natural Resources,Natural resour

12、ces can be important but are not necessary for an economy to be highly productive in producing goods and services.,Technological Knowledge,Technological knowledge is the understanding of the best ways to produce goods and services. Human capital refers to the resources expended transmitting this und

13、erstanding to the labor force.,The Production Function,Economists often use a production function to describe the relationship between the quantity of inputs used in production and the quantity of output from production.,The Production Function,Y = A F(L, K, H, N) Y = quantity of output A = availabl

14、e production technology L = quantity of labor K = quantity of physical capital H = quantity of human capital N = quantity of natural resources F( ) is a function that shows how the inputs are combined.,The Production Function,A production function has constant returns to scale if, for any positive n

15、umber x, xY = A F(xL, xK, xH, xN) That is, a doubling of all inputs causes the amount of output to double as well.,The Production Function,Production functions with constant returns to scale have an interesting implication. Setting x = 1/L, Y/ L = A F(1, K/ L, H/ L, N/ L) Where: Y/L = output per wor

16、ker K/L = physical capital per worker H/L = human capital per worker N/L = natural resources per worker,The Production Function,The preceding equation says that productivity (Y/L) depends on physical capital per worker (K/L), human capital per worker (H/L), and natural resources per worker (N/L), as

17、 well as the state of technology, (A).,Economic Growth and Public Policy,Governments can do many things to raise productivity and living standards.,Government Policies That Raise Productivity and Living Standards,Encourage saving and investment. Encourage investment from abroad Encourage education a

18、nd training. Establish secure property rights and maintain political stability.,Government Policies That Raise Productivity and Living Standards,Promote free trade. Control population growth. Promote research and development.,The Importance of Saving and Investment,One way to raise future productivi

19、ty is to invest more current resources in the production of capital.,(a) Growth Rate 1960-1991,(b) Investment 1960-1991,Growth and Investment,The Importance of Saving and Investment,As the stock of capital rises, the extra output produced from an additional unit of capital falls; this property is ca

20、lled diminishing returns. Because of diminishing returns, an increase in the saving rate leads to higher growth only for a while.,The Importance of Saving and Investment,In the long run, the higher saving rate leads to a higher level of productivity and income, but not to higher growth in these area

21、s.,The Importance of Saving and Investment,The catch-up effect refers to the condition that, other things being equal, it is easier for a country to grow fast if it starts out relatively poor.,Investment from Abroad,Governments can increase capital accumulation and long-term economic growth by encou

22、raging investment from foreign sources.,Investment from Abroad,Investment from abroad takes several forms: Foreign Direct Investment Capital investment owned and operated by a foreign entity. Foreign Portfolio Investment Investments financed with foreign money but operated by domestic residents.,Edu

23、cation,For a countrys long-run growth, education is at least as important as investment in physical capital. In the United States, each year of schooling raises a persons wage on average by about 10 percent. Thus, one way the government can enhance the standard of living is to provide schools and en

24、courage the population to take advantage of them.,Education,An educated person might generate new ideas about how best to produce goods and services, which in turn, might enter societys pool of knowledge and provide an external benefit to others.,Education,One problem facing some poor countries is t

25、he brain drain-the emigration of many of the most highly educated workers to rich countries.,Property Rights and Political Stability,Property rights refer to the ability of people to exercise authority over the resources they own. An economy-wide respect for property rights is an important prerequis

26、ite for the price system to work. It is necessary for investors to feel that their investments are secure.,Free Trade,Trade is, in some ways, a type of technology. A country that eliminates trade restrictions will experience the same kind of economic growth that would occur after a major technologic

27、al advance.,Free Trade,Some countries engage in . . . . . . inward-orientated trade policies, avoiding interaction with other countries. . . . outward-orientated trade policies, encouraging interaction with other countries.,Control of Population Growth,Population is a key determinant of a countrys l

28、abor force. Large populations tend to produce greater total GDP. However, GDP per person is a better measure of economic well-being, and high population growth reduces GDP per person.,Research and Development,The advance of technological knowledge has led to higher standards of living. Most technolo

29、gical advance comes from private research by firms and individual inventors. Government can encourage the development of new technologies through research grants, tax breaks, and the patent system.,The Productivity Slowdown,From 1959 to 1973 productivity grew at a rate of 3.2 percent per year. From

30、1973 to 1998 productivity grew by only 1.3 percent per year. The slowdown in economic growth has been one of the most important problems facing economic policymakers.,The Productivity Slowdown,The slowdown in productivity growth is a worldwide phenomenon. The slowdown cannot be traced to those factors of production that are most easily measured technology may be the key.,1.0,1.5,2.0,2.5,3.0,3.5,4.0,1870-,1890,1890-,