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Chapter Lecture 6-10

ECON102 Chapter Notes - Chapter Lecture 6-10: Google Images, Guardians Of The Universe, Opportunity CostPremium


Department
Economics
Course Code
ECON102
Professor
All
Chapter
Lecture 6-10

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University of Alberta
ECON102
Introduction to Macroeconomics
Winter 2018
Lecture 6-10
Prof: Mesbah Sharaf
Lecture Notes

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Chapter 7: Economic Growth in the Global Economy
o What causes economic growth? (remember: economic growth is one of the
macroeconomic goals for any country).
o Economic growth can happen when the quantity and quality of the resources
increases.
o Economic growth by definition is when the productive capacity (how productive
the resources are?) is high.
o Quality means the productive amount of goods and services that a worker can
produce per hour. We theoretically want the very best (very best means that the
workforce is healthy, educated, and highly productive thereby).
o Resources mean land, minerals, and capital.
On this note, there are two types of capital: human and physical capitals
Human Capital: which is knowledge and skills obtained from
education and training
o Government should invest in and subsidize education and
other forms of human capital investment as part of trying
to increase the human capital.
Physical Capital: which is capital goods, like roads, bridges,
machines, and infrastructure
o Government should invest in infrastructure, like roads and
bridges as part of trying to increase the physical capital.
Another factor that can promote economic growth is the advancement in
technology, there are two types of technologies: innovation and invention.
o Innovation: which is the application of new knowledge to improve
existing products or to create a new product.
o Invention: which is to create something brand new that did not exist
before
To achieve technological advances, we need to do Research and Development,
which is called in Economics as R&D. R&D activities are ones that create new
products or ideas or processes.
o For example: Governments currently do give subsidies to some chosen
companies based on their performance to further conduct research and
thereby develop efficient methods of doing processes better.
o Governments need and should give INCENTIVES for companies to
conduct R&D. There are a few examples where the government provides
incentives for companies to develop better ideas, such as enforcing
property rights, copyrights, and patents. All of these examples have the

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key idea to protect an individual or company from getting its’ ideas or
belongings stolen or misused.
Another important driver of economic growth is free trade.
o Free trade, by definition, is no quotas, customs, or tariffs imposed during
trade.
o Not every country produces every item, rather countries specialize in
production of goods that they can make or grow the very best.
To provide an analogy, this is exactly like how Graduate students
or PhD candidates focus on one area of speciality and further
pursue it. A country in the same manner, finds its’ speciality and
further produces it.
o The country that specializes in a certain good(s) and produces it over and
over again must have a comparative advantage in producing that good(s).
o Comparative advantage is the ability to produce a certain good or
goods with a lower opportunity cost.
Generally, the more production that a country does, the higher its’ economic
growth.
o Maltus’s Argument
o Maltus argues that although real GDP (Remember: real GDP was production
based and that it was the measurement used to predict the economic growth of
a country’s economy) increases, the population also increases at a higher rate
and this causes Per Capita real GDP to decreases which will eventually cause
starvation.
Per Capita GDP = real GDP / population
In a scenario where the population quadruples and the real GDP
doubles, what would happen to the Per Capita GDP? The Per
Capita GDP will decrease, which means the economic growth is
NEGATIVE.
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