11 Economic Growth and the Wealth of Nations

pg 334-367

Misconception - Natural resources are the key to economic prosperity.

Why does economic growth matter?

Economic growth is measured as the percentage change in real per captia GDP.

• Some ugly facts
• Learning from the Past
  1. We were all poor once.
  2. Some got rich, others stay poor.
• Measuring Economic Growth

$economic \: growth = \%\Delta in \: nominal \: GDP - \%\Delta price \: level - \%\Delta population$

• Growth Rate and Income Levels
• The Rule of 70 - If the annual growth rate of a variable is x%, the size of that variable doubles approximately every $70 \div x$ years.

How do resources and technology contribute to economic growth?

Resources

Resources, also know as factors of production, are the inputs used to produce goods and services.

• Natural Resources

Figure 11.3 Global GDP Density
The world's wealthiest areas (shown in darker colors on this map) are often those located near natural shipping lanes along coasts and rives, where trade naturally flowed. This pattern is evidence that geography matters in economic development.

• Physical Capital - Shipping Container
• Human Capital - resource represented by the quantity, knowledge, and skills of the workers in the economy.

Technology

1. Technology is the knowledge that is available for use in production.
2. A technological advancement introduces new techniques or methods so that firms can produce more valuable outputs per unit of input.

What institutions foster economic growth?

An institution in a significant practice , relationship, or organization in a society. Institutions are the official and unofficial conditions that shape the environment in which decisions are made.

• Private Property Rights - the rights of individuals to own property, to use it in production, and to own the resulting output. (Ex, xiaogang agreement)
• Political Stability and the Rule of Law
• Competitive Open Market
  1. Competitive Market
  2. International Trade
  3. Flow of Funds across Borders
• Efficient Taxes - sufficient to fund the activities of government while impeding production and consumption decisions as little as possible.
• Stable Money and Prices

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