Lecture Macroeconomics - Chapter 16: Economic growth and the new economy

ECONOMIC
GROWTH
&
THE NEW
ECONOMY
Chapter 16
SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

1


In this chapter you will learn
About the ingredients of economic
growth
About production possibility analysis
About Canada’s economic growth rates
About productivity growth and the new
economy

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

2


Chapter 16 Topics
Ingredients of Growth

Production Possibilities Analysis
Canadian Economic Growth Rates
Accounting for Growth
Productivity Growth & the New
Economy
Is Growth Desirable & Sustainable?
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

3


Ingredients of Growth
Supply Factors
• natural resources

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

4


Ingredients of Growth
Supply Factors
• natural resources
• human resources

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

5


Ingredients of Growth
Supply Factors
•
•
•

natural resources
human resources
capital goods

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

6


Ingredients of Growth
Supply Factors
•
•
•
•

natural resources
human resources
capital goods
technology

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

7


Ingredients of Growth
Supply Factors
•
•
•
•

natural resources
human resources
capital goods
technology

Demand Factor
• households & businesses must purchase the
economy’s output

Efficiency Factor
• economic efficiency & full employment

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

8


Chapter 16 Topics
Ingredients of Growth
Production Possibilities Analysis
Canadian Economic Growth Rates
Accounting for Growth
Productivity Growth & the New
Economy
Is Growth Desirable & Sustainable?
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

9


Production Possibilities Analysis
Growth & Production Possibilities
Capital goods

Figure 16-1
C
A
b

Economic
growth

a

B
D
Consumer goods
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

10


Production Possibilities Analysis
Figure 16-2

Labour & Productivity
size of
of employed
employed
••size
labour force
force
labour
average hours
hours
••average

of work
work
of

labour
labour force participation
inputs
rate
(hours
of work)

X

technological
••technological
advance
advance
quantity of
of
••quantity
capital
capital
education &
&
••education
training
training
allocative
••allocative
efficiency

efficiency
other
••other

labour
productivity
(average
output per
hour)

© 2002 McGraw-Hill Ryerson Ltd.

=

Real
Real
GDP
GDP

Macroeconomics, Chapter 16

11


Production Possibilities Analysis
Growth in the AD-AS Model
C
A

ASLR1 ASLR2

Price level

Capital goods

Figure 16-3

B
D
Consumer goods
© 2002 McGraw-Hill Ryerson Ltd.

Q1 Q2
Real GDP
Macroeconomics, Chapter 16

12


Long-Run AD - AS Model
Figure 16-4
Price Level

ASLR1

Figure 16-4

Long-run &
short-run AS
increase over
time

AS1

P1

AD1

o

Q1

© 2002 McGraw-Hill Ryerson Ltd.

Real GDP
Macroeconomics, Chapter 16

13


Long-Run AD - AS Model
Figure 16-4
ASLR1

Figure 16-4

ASLR2

Price Level

AS2

AS1

Size of AD
shift
determines
inflation

P1

AD1

o

Q1

© 2002 McGraw-Hill Ryerson Ltd.

Q2

Real GDP

Macroeconomics, Chapter 16

14


Long-Run AD - AS Model
Figure 16-4
ASLR1

Figure 16-4

ASLR2

Price Level

AS2
AS1

P2
P1
AD2
AD1

o

Q1

© 2002 McGraw-Hill Ryerson Ltd.

Q2

Real GDP

Macroeconomics, Chapter 16

15


Chapter 16 Topics

Ingredients of Growth
Production Possibilities Analysis
Canadian Economic Growth Rates
Accounting for Growth
Productivity Growth & the New
Economy
Is Growth Desirable & Sustainable?
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

16


Canadian Economic Growth
Rates
Real GDP in the last half
century has increased over
sixfold
Growth particularly strong in
the 1960s, but declined
during the 1970s & 1980s

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

17

Table 16-1

Year

GDP ($ billions,
1992)

Population
(millions)

Per capita GDP

1926

56.8

9.5

5,979

1929

68.1

10.0

6,810

1933

47.6

10.6

4,491

1939

71.7

11.0

6,518

1942

110.9

11.5

9,643

1946

114.1

12.3

9,276

1951

143.0

14.0

10,214

1956

192.0

16.1

11,925

1961

220.8

18.2

12,132

1966

299.7

20.0

14,985

1971

370.9

21.6

17,171

1976

470.3

23.0

20,448

1981

551.3

24.3

22,687

1986

628.6

25.4

24,748

692.2
© 20021991
McGraw-Hill Ryerson
Ltd.

27.0
25,637 16
Macroeconomics,
Chapter

18


Chapter 16 Topics
Ingredients of Growth
Production Possibilities Analysis
Canadian Economic Growth Rates
Accounting for Growth
Productivity Growth & the New
Economy
Is Growth Desirable & Sustainable?
© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

19

Accounting for Growth
Post-1950 productivity growth greater
than can be attributed to increases in
labour & capital
• total factor productivity (TFP) has
increased

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

20


Accounting for Growth
Inputs Versus Productivity
• productivity growth has been a significant
force in the growth of real GDP
• productivity growth slowed from the mid1970s to early 1990s

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

21


Accounting for Growth

Quantity of Labour
• both population & labour force have
increased

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

22


Accounting for Growth
Technological Advance
• process innovation
• product innovation

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

23


Accounting for Growth
Quantity of Capital
• almost 45% of the annual growth of real
output since 1961 is attributable to
increases in the quantity of capital
• public investment in infrastructure also
important

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

24


Accounting for Growth
Education & Training
• educational attainment has increased
• concerns about quality

© 2002 McGraw-Hill Ryerson Ltd.

Macroeconomics, Chapter 16

25