CHAPTER 14: Economic Growth

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CHAPTER 14Economic Growth
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Topics

• 14.1 Ingredients of Growth
• 14.2 Canadian Economic Growth
• 14.3 Canadian Productivity
• 14.4 Growth Sustainability

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Ingredients of Growth

• Supply Factors
• natural resources
• human resources
• capital goods
• technology

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Ingredients of Growth

• Demand Factors
• Households and businesses must purchase output

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Ingredients of Growth

• Efficiency Factors
• Allocative
• Productive
• Preconditionsfor growth

VIDEO
Dr. Eleni Gabre-Madhin
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Growth, ProductionPossibilities, AD-AS
Figure 15-1
A
Capital goods
a
B
Consumer goods
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Growth Production Possibilities
Figure 15-1
A
Capital goods
a
B
Consumer goods
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Growth in the AD-AS Model
Figure 15-3
ASLR1
A
Capital goods
Price level
B
Q1
Real GDP
Consumer goods
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Growth in LR AD-AS Model
Figure 15-4
ASLR1
Long-run short-run AS increase over time
Price Level
AS1
P1
AD1
o
Q1
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Growth in LR AD-AS Model
Figure 15-4
ASLR1
ASLR2
AS2
Price Level
AS1
Size of AD shift relative to AS shift determines
inflation
P1
AD1
o
Q2
Q1
Real GDP
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Growth in LR AD-AS Model
Figure 15-4
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Canadas Economic Growth
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Canadas Growth
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Productivity and related measures, by business
sector (quarterly) ( change from previous year)
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Canadas Growth

• DUE TO
• Increased inputs (land, labour, capital)
• Increased productivity of inputs

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Canadas Growth

• FACTORS
• Increase in population
• Lower birth rates offset by immigration
• Increased participation of women in labour force
• Investment in human capital
• Education training
• Increase in capital
• Investment, infrastructure (provided by
  government)

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Canadas Growth

• FACTORS
• Economies of scale
• Shift to higher productivity industries
• Technological advances
• More efficient methods
• Better capital

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Cost Reductions from Technology
From Macroeconomics, McConnell Brue Table 14.2
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The New Economy

• Higher productivity growth, economic growth since
  1995
• DUE TO
• Recent technological advances
• Increased global competition

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The New Economy

• Produce more efficiently
• Provide new products / services
• Sustainability is uncertain

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Criticismsof Economic Growth

• Destroys the environment
• Pollution, global warming, ozone depletion
• No evidence it solves social problems
• Poverty distribution not production issue
• Human welfare may decrease
• Stress affects physical / mental health

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Proponents of Economic Growth

• Higher standard of living allows greater welfare,
  personal choice
• Can afford social goods
• Care of disabled/elderly, labour laws, safety
• Reduces poverty by increasing all incomes
• Pollution as externality corrected through
  legislation, taxes
• If resources depleted, cost ?, switch to
  substitutes