Chapter 6 Review
6.1 – Economic growth
A nation’s economic growth can be measured either as an increase in real
GDP over time or as an increase in real GDP per capita over time.
o Real GDP in Canada has grown at an average annual rate of about 3.3
percent since 1961; real GDP per capita has grown at roughly a 2.1
percent annual rate over that same period.
Sustained increases in real GDP per capita did not happen until the late
o When England and then other countries began to experience modern
economic growth, which is characterized by institutional structures
that encourage savings, investment, and the development of new
o Institutional structures that promote growth include:
Strong property rights
Efficient financial institutions
Competitive market system
6.2 – Modern economic growth
Because some nations have experienced more than two centuries of
economic growth while others have begun to experience economic growth
only recently, some countries today are much richer than other countries.
It is possible, however, for countries that are currently poor to grow more
quickly than countries that are currently rich because the growth rates of
rich-country GDPs per capita are limited to about 2 percent per year.
In order to continue growing, rich countries must incent and apply new
technologies. By contrast, poor countries can grow much more quickly because they can
simply adopt the institutions and cutting-edge technologies already
developed by the rich countries.
6.3 – Determinants of growth
The determinants of economic growth responsible for changes in growth
o Four supply factors:
Increases in the quantity and quality of natural resources
Increases in the quantity and quality of human resources
Increases in the supply (or stock) of capital goods
Improvements in technology
o One demand factor:
Increases in total spending
o One efficiency factor
Increases in how well an economy achieves allocative and
The growth of a nation’s capacity to produce output can be illustrated
graphically by an outward shift of its production possibilities curve.
Growth accounting attributes increases in real GDP either to increase in the
amount of labour being employed or to increases in the productivity of the
labour being employed.
o Increases in Canada’s real GDP are mostly the result of increases in
o The increases in labour productivity can be attributed to:
Increases in the quantity of capital goods per worker
Improvements in the education and training of workers
The exploitation of economies of scale
Improvements in the allocation of labour across different
industries Over long time periods, the growth of labour productivity causes an
economy’s growth of real wages a