Isues in economics today 6th by guell chapter20
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Chapter 20
Economic
Growth and
Development
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
• Growth in Already Developed
Countries
• Comparing Developed Countries
and Developing Countries
• Fostering (and Inhibiting)
Development
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1-2
Growth in Already Developed
Countries
• Sources of Growth
• Increases in Aggregate
Demand
• Increases in Aggregate Supply
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Aggregate Demand
• Variables to Shift Aggregate Demand
• Low interest rates
• Low taxes
• High government spending
• Government can not make this occur
continuously
• Eventually, the Classical Range of
the Aggregate Supply curve will be
reached
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Increasing Aggregate Demand
PI
AS
PI’
PI*
AD’
AD
RGDP*
McGraw-Hill/Irwin
RGDP’
RGDP
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1-5
Aggregate Supply
• Variables that can shift Aggregate
Supply
• Wage and Input Costs
• Productivity
• Technology
• Wage and Input costs can’t
continuously decrease
• Productivity and Technology can
continually increase
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1-6
Increases in Aggregate Supply
PI
AS
AS’
PI*
PI’
AD
RGDP*
McGraw-Hill/Irwin
RGDP’
RGDP
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1-7
Productivity and GDP Growth
1990-2004
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Comparing Developed Countries and
Developing Countries
• Rich Countries
• Are getting richer (faster GDP growth)
• Have more evenly divided incomes
(lower GINI coefficients)
• GDP is produced by services, then
industry (agriculture insignificant)
• Lower Inflation
• Poor Countries
•
•
•
•
Have lower GDP growth rates
Have highly uneven incomes
Agriculture is an important part of GDP
Have higher levels of inflation
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Fostering (and Inhibiting)
Development
• Solow growth model predicted
convergence of income.
• Evidence shows this is not
occurring.
• Political and institutional
problems inhibiting growth.
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The Challenges Facing
Developing Countries
•
•
•
•
•
Low Rates of Basic Literacy
Lack of Infrastructure
Political Instability
Corruption
Lack of Independent Central
Banking
• Inability to Repatriate Profits
• A Need to Focus on the Basics
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• Japan
Success Stories
• Solid financial institutions
• Education
• Few Resources
• China
• Resources
• Cheap labor
• South Korea
• Liberalized political institutions
• Solid financial institutions
• Saudi Arabia & Kuwait
• Oil
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What Works
• Basic Building Blocks
• education
• a low or manageable level of
government corruption
• a level of political and financial
stability
• Creates confidence among
foreign investors
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