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Ch. 6 Notes

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Ryerson University
ECN 204
Thomas Barbiero

Chapter 6 (Pg. 120) Economic Growth Economists define and measure economic growth as either: 1. An increase in real GDP occurring over some time period. 2. An increase in real GDP per capita occurring over some time period.  The real GDP per person, found by dividing real GDP by a country’s population %Change in growth = [(2008 Real GDP – 2007 Real GDP)/2007 GDP] x 100 Growth as a Goal  Wide economic goal  Increase in output relative to population= increase in wages/income/standard of living  Growth lessens the burden of scarcity Arithmetic of Growth  Small percent changes matter when dealing with large sums  Rule of 70: Approximate number of years required to double real GDP = ________70________ Annual percentage rate of growth For example, 5% annual rates of growth will double real GDP in about 14 years (= 70/5) Growth in Canada  Three reasons: (1) Improved products and services (2) Added Leisure (3) Other Impacts: Environment Modern Economic Growth (Pg. 122)  Modern Economic Growth is the historically recent phenomenon in which nations have experience sustained increases in real GDP per capita  Modern economic growth has had effects on us: (1) Culturally: for the first time in history ordinary people have significant time for leisure activities and the arts (2) Socially: has allowed for universal public education, elimination of ancient social norms and legal restrictions against women and minorities doing certain jobs or holding certain positions (3) Politically: countries experiencing modern economic growth have tended to move toward democracy Uneven Distribution of growth: (pg. 123)  The timing of a country beginning its modern economic growth has to do a lot with their current GDP per capita and living standards Catching Up is possible (Pg. 123)  Leader countries: As it relates to economic growth, countries that develop and use advanced technologies, which then become available to follower countries.  Follower countries: As it relates to economic growth, countries that adopt advanced technologies that previously were developed and used by leader countries Institutional Structures That Promote Growth • Strong Property Rights Is Necessary for rapid and sustained economic growth. • Patents and Copyrights Is necessary if society wants constant flow of innovation. • Efficient Financial Institutions Is necessary to channel savings generated by households to businesses. • Literacy and Education No innovation without it • Free Trade Promotes economic growth, and the spread of ideas and innovations. • Competitive Market System *Quick Review Pg.127 Ingredients of Growth Six “ingredients” of economic growth: Four are supply factors, i.e. changes in the physical and technical agents of production, namely: 1. Increases in the quantity and quality of natural resources,
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