TAILIEUCHUNG - Lecture Economics: The basics (2/e): Chapter 9 - Michael Mandel

Chapter 9 - Growth. After reading the material in this chapter, you should be able to: Explain the benefits of economic growth, calculate the economic growth rate, discuss the short-term and long-term change in livings standards and calculate real GDP per capita, list the forces driving economic growth, explain the role of government in economic growth. | Chapter 9 Growth McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Explain the benefits of economic growth. Calculate the economic growth rate. Discuss the short-term and long-term change in livings standards and calculate real GDP per capita. List the forces driving economic growth. Explain the role of government in economic growth. Discuss the history of . productivity growth. 9- The Significance of Growth Growth in an economy simply means that it produces more goods and services than before. Economic growth is important because it results in a higher standard of living; thus, people are better off. A second benefit of growth is that it gives us more choices, as the economy is able to produce more goods and services. 9- Production Possibility Frontier The production possibility frontier (PPF) is defined as all the combinations of different goods and services that the economy is capable of producing at a particular time. A PPF graph for two outputs, healthcare and entertainment, is shown on the next slide. Economic growth allows the PPF to shift outward, meaning that the economy can now produce more healthcare, more entertainment, or both. 9- Production Possibility Frontier 9- Growth versus the Zero-Sum Economy A zero-sum economy is one of no growth. In this case, to increase the production of one good, we must cut the production of something else. With no growth, the economy operates on the same production possibility frontier. A growing economy is a non-zero-sum. In this case, the production possibility frontier is shifting outward. It is possible to get more of both goods. 9- Growth and the PPF Healthcare (more ) Entertainment (more ) Production possibility frontier today Production possibility frontier next year x x A B growth 9- Growth versus the Zero-Sum Economy The growth versus zero-sum argument can be applied to the distribution of income. With no growth, the .

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