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Chapter 15 "Economic growth", after reading this chapter, you should be able to: Specify how economic growth is measured, describe what GDP per capita and GDP per worker measure, illustrate how productivity increases, explain how government policy affects growth, discuss why economic growth is desirable. | Chapter 15 Economic Growth The Nature of Growth Economic growth refers to increases in the output of goods and services (real GDP) – an expansion of production possibilities. Improvements in output may result from: Increased use of existing capacity. OR Increases in that capacity itself. 15- Economic growth means that real GDP is increasing. Economists focus on the increase in output, that is, material growth. Short-Run Changes in Capacity Use The easiest kind of growth comes from increased use of our existing productive capacity. When we operate inside the PPC, we do not take full advantage of our productive capacity. 15- We do not always use our productive capacity to its fullest. In the short run, we can achieve economic growth simply by moving out to our PPC. Long-Run Changes in Capacity To achieve large and lasting increases in output, we must push the PPC outward. The PPC represents our potential GDP. Economists tend to define economic growth in terms of changes in potential GDP. 15- Potential GDP represents the maximum possible output, given existing resources and technology Figure 15.1 15- In the short run, we can move from A to B. In the long run, we can expand the PPC outward and move from B to C. Aggregate Supply Focus Economic growth – sustained increases in total output – is possible only if the AS curve shifts rightward. 15- An increase in aggregate supply will lead to an increase in GDP, and represents an increased capability to produce. Figure 15.2 15- Note that we have added supply-side policy to the policy levers. Nominal versus Real GDP Nominal GDP is the total value of goods and services produced within a nation’s borders, measured in current prices. Real GDP is the inflation-adjusted value of GDP, the value of output measured in constant prices. We use real GDP to measure growth. 15- If we used Nominal GDP to measure changes from year to year, those changes could be either changes in | Chapter 15 Economic Growth The Nature of Growth Economic growth refers to increases in the output of goods and services (real GDP) – an expansion of production possibilities. Improvements in output may result from: Increased use of existing capacity. OR Increases in that capacity itself. 15- Economic growth means that real GDP is increasing. Economists focus on the increase in output, that is, material growth. Short-Run Changes in Capacity Use The easiest kind of growth comes from increased use of our existing productive capacity. When we operate inside the PPC, we do not take full advantage of our productive capacity. 15- We do not always use our productive capacity to its fullest. In the short run, we can achieve economic growth simply by moving out to our PPC. Long-Run Changes in Capacity To achieve large and lasting increases in output, we must push the PPC outward. The PPC represents our potential GDP. Economists tend to define economic growth in terms of .
