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Chapter 8 Notes (what causes economic growth (increase in productivity i.e…
Chapter 8 Notes
what causes economic growth
increase in productivity i.e. more is produced in the same amount of time than before
natural resources -- increase in renewable and nonrenewable
Physical capital: increase in tools, buildings, equipment, and mass production
Human capital: increase in education, health entrepreneurship, knowledge, and culture (to encourage the other categories)
Technology: increase in inventions and technologies
Government: private property rights, sanctity of contracts, dependable banking/money system, government stability, free trade, autonomy
how has the economy grown
Stage 1: Encouraged by Hamilton, the U.S. economy set up a national bank and began to diversify the farm economy
Stage 2: new transportation methods including roads, canals (like the Erie Canal), allowed different parts of the country to specialize
Stage 3: Railroads across the country allow the U.S. to build financial infrastructure including stocks and bonds across the country
Stage 4: Era of consumer = new consumer items help people use their time more efficiently
Stage 5: Government involvement increases after Great Depression as Government pumps money into the economy
Stage 6: services dominant economy
How do we measure economic growth?
Economic growth = increase in standard of living
includes health, more goods and services, new technology, leisure time etc.
GDP -- Gross Domestic Product
Measures the monetary value of the goods and services produced in a year/quarter
Components
consumption expenditures -- private purchases of goods and services (except houses)
includes things like cookies, and yoga classes
government spending
all government purchases THAT ARE FOR A PRODUCT OR SERVICE including government paid salaries (ie welfare doesn't count)
gross investment
buissness sector composed of
tools
buisness buidlings
residential construction
change in inventory (so don't double count things made in a different year than purchased) -- this is used to determine what is produced, but not sold
End -begining
net exports (exports-imports)
Bureau of Economic Analysis calculates GDP using statistics and surveys. We learn about the GDP quarterly and annually
Economic growth = (GDP end- GDP begining/ GDP begining ) * 100%
3-4% growth is ideal
negative growth is considered a recession
How should we measure economic growth
Inflation
inflation = money has less purchasing power than before; deflation = more purchasing power than before
GDP is corrected for inflation so can make a fair comparison between GDPs past base year
population
If GDP increases less than the population increase, individuals won't be feeling that economic growth as much. Therefore, can look at GDP per capita
all types of production?
underground economy -- work that isn't paid for/ illegally paid for not to the knowledge of government
not included in GDP because hard to calculate
negatives and positives of production be counted? -- externalities
externalities = impact a transaction has on a third party individual/group of people
positive externalities lessen GDP: ex. child gets vaccination, which means fewer sick children go to the doctor (positive impact, but negative on GDP)
negative externalties grow GDP: factory causes people to visit the doctor since they are ill from the polllution