Economic Growth CH12 Slides 20-27

❖Measuring Economic Growth

➢GDP and population growth

■real GDP per capita (per person)

➢GDP and the quality of life

■where is the money spent—guns or

butter?

■standard of living depends on income

distribution

Economic Growth

❖Capital Deepening

➢Putting more money into the economy

via technology, education, and training
improves the chance of a better
economy in the future
■can be physical or human capital

❖Saving and Investment

➢Income not used for consumption is

saving

➢Savings rate—disposable income

that is saved

❖Population, Government, and Trade

➢Population growth

■larger populations can lead to

lower standards of living

➢Government

■tax policies can reduce or expand

saving and investment

■government policies can help

capital deepening
●e. g.—education,

infrastructure, and other
public goods

➢Foreign trade

■trade deficits or surpluses

❖Technological Progress

➢An increase in efficiency gained by

using technology

➢Measuring technological progress

■adds approximately 1% per year

to GDP

➢Causes of technological progress

■scientific research
■innovation
■scale of the market

●larger markets provide more

incentives for innovation

●education and experience
●natural resource use

◆leads to greater efficiency and more

creative uses for scarce resources