BELL RINGER 05.04.2015Write complete question and answer on your Bell Ringer form.

How has the recent Blue Bell recall affected the company’s economic growth? Name all the things you can think of that has changed for Blue Bell.

ECONOMICSMay 4, 2015

Chapter 12: Gross Domestic Product and Growth

Section 12.3: Economic Growth

MEASURING ECONOMIC GROWTH

Real GDP per capita (per person) measures the comparison of change in real GDP and population, and is considered the best measure of a nation’s standard of living.

It still cannot measure a person’s quality of life nor how the output (GDP) is distributed.

12.3

CAPITAL DEEPENING

Economists use labor productivity to measure the output of the average worker.

Capital deepening increases the amount of capital available to each worker, thus increasing his or her output and increasing economic growth.

12.3

CAPITAL DEEPENING

Two forms of capital deepening: physical (equipment) and human (training, skills).

Increasing worker output tends to increase workers’ wages.

12.3

SAVING AND INVESTMENT

An economy’s output is either consumed (consumers) or invested (by companies).

Income not used for consumption is called saving.

Saving = investment

12.3

SAVING AND INVESTMENT

The proportion of disposable income that is saved is called the savings rate (not the interest rate on savings).

The amount that is available for saving is considered the amount that is available for business investment.

12.3

POPULATION, GOVERNMENT, AND TRADE

If the population changes while the real GDP remains the same, the result is that the population change has an inverse effect on the real GDP per capita.

Lowered GDP per capita reflects in lower capital deepening.

12.3

POPULATION, GOVERNMENT, AND TRADE

Governments have to raise taxes to cover its consumption spending.

The higher the taxes, the less households have to spend (inverse effect).

However, if taxes go to pay for public goods, investment increases.

12.3

POPULATION, GOVERNMENT, AND TRADE

Foreign trade deficit can result in capital deepening IF the goods imported are investment goods (structures and equipment bought by businesses).

Capital deepening can help a country pay back its creditors because it increases economic growth.

12.3

TECHNOLOGICAL PROGRESS

Technological progress creates an increase in efficiency by increasing output without using more inputs.

Technological progress comes either by new machines or new methods.

12.3

TECHNOLOGICAL PROGRESS

Measuring tech. progress is done by determining how much growth comes from increases in capital and how much comes from increases in labor. (Robert Solow, 1987 Nobel winner for economics)

12.3

TECHNOLOGICAL PROGRESS

Factors that contribute to tech. progress:

scientific research

innovation

scale of the market

education and experience

natural resource use

12.3

CHECK QUESTION 12.3Write complete question and answer on your Bell Ringer form.

What role does saving play in the process of economic growth?