the growth in real gdp per capita, us, 1900–2006
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Long-run economic growth The process by which rising productivity increases the average standard of living. Calculating Growth Rates and the Rule of 70. The Growth in Real GDP per Capita, US, 1900–2006. Making the Connection. The Connection between Economic Prosperity and Health. - PowerPoint PPT PresentationTRANSCRIPT
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 1 of 34
Long-run economic growth The process by which rising productivity increases the average standard of living.
The Growth in Real GDP per Capita, US, 1900–2006
Calculating Growth Rates and the Rule of 70
rateGrowth
70 double toyears ofNumber
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 2 of 34
The Connection between Economic Prosperity and Health
Makingthe
Connection
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 3 of 34
Long-Run Economic Growth
What Determines the Rate of Long-Run Growth?
Capital Manufactured goods that are used to produce other goods and services.
Increases in Capital per Hour Worked
Technological Change
Economic growth depends more on technological change than on increases in capital per hour worked.
Technological change is an increase in the quantity of output firms can produce using a given quantity of inputs.
Labor productivity The quantity of goods and services that can be produced by one worker or by one hour of work.
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 4 of 34
The Role of Technological Change in Growth
Between 1960 and 1995, real GDP per capita in Singapore grew at an average annual rate of 6.2 percent. This very rapid growth rate results in the level of real GDP per capita doubling about every 11.5 years.
In 1995, Alywn Young of the University of Chicago published an article in which he argued that Singapore’s growth depended more on increases in capital per hour worked, increases in the labor force participation rate, and the transfer of workers from agricultural to nonagricultural jobs than on technological change.
If Young’s analysis was correct, predict what was likely to happen to Singapore’s growth rate in the years after 1995.
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 5 of 34
What Explains Rapid Economic Growth in Botswana?
Makingthe
Connection
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 6 of 34
Long-Run Economic Growth
Learning Objective 9.1
Potential Real GDP
FIGURE 9.2
Actual and Potential Real GDP
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 7 of 34
Saving, Investment, and the Financial System
An Overview of the Financial System
Financial markets Markets where financial securities, such as stocks and bonds, are bought and sold.
Financial intermediaries Firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers.
Financial system The system of financial markets and financial intermediaries through which firms acquire funds from households.
Channeling resources to productive uses
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 8 of 34
Saving, Investment, and the Financial System
The Macroeconomics of Saving and Investment
Y = C + I + G + NX
I = Y − C − G - NX
privateS = Y + TR − C − T = Y - (T -TR) - C
publicS = (T − TR) − G
T - TR = Net taxes
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 9 of 34
S = (Y − (T - TR) − C) + ((T − TR) − G)
S = Y − C − G = I + NX
I = S - NX
privateS publicSS = +
or
or
So, we can conclude that total saving must equal total investment:
Saving, Investment, and the Financial System
The Macroeconomics of Saving and Investment
- NX = Capital Inflows
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 10 of 34
Demand and Supply in the Loanable Funds Market
The Market for Loanable Funds
Saving, Investment, and the Financial System
The Market for Loanable Funds
Rea
l in
tere
st r
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 11 of 34
Explaining Movements in Saving, Investment, and Interest Rates
An Increase in the Demand for Loanable Funds
Saving, Investment, and the Financial System
The Market for Loanable Funds
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 12 of 34
Explaining Movements in Saving, Investment, and Interest Rates
The Effect of a Budget Deficit on the Market for Loanable Funds
Saving, Investment, and the Financial System
The Market for Loanable Funds
Crowding out A decline in private expenditures as a result of an increase in government purchases.