Principles of macroeconomics 3250 201
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Principles of Macroeconomics 3250:201. Richard W. Stratton. Administration. 6 graded assignments this week Homework 07, 08, 09, 10 Essay 02 CBT Test 03 (Friday - Monday) 4 graded assignments next week Homework 11, 12 Essay 03 CBT Test 04 (Friday - Monday). Decision Tree. Decision Tree.

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Principles of Macroeconomics 3250:201

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Principles of macroeconomics 3250 201

Principles of Macroeconomics3250:201

Richard W. Stratton


Administration

Administration

  • 6 graded assignments this week

    • Homework 07, 08, 09, 10

    • Essay 02

    • CBT Test 03 (Friday - Monday)

  • 4 graded assignments next week

    • Homework 11, 12

    • Essay 03

    • CBT Test 04 (Friday - Monday)

The University of Akron

Decision Tree


Decision tree

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


Review readings

Review Readings

  • Compare and discuss questions on worksheet or chapter 10

    • write down top 5 questions for the Group

  • Class

    • Discuss questions rotating among Groups

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Decision tree1

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


Calculating growth rate

Calculating growth rate

  • Calculation of Growth Rate for 2001

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Calculating growth rate1

Calculating growth rate

  • Step 1 – Calculate Real GDP

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Calculating growth rate2

Calculating growth rate

  • Step 2 – Calculate Growth Rate

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Calculating growth rate3

Calculating growth rate

  • Step 2a – Calculate Growth Rate

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Growth in standard of living

Growth in Standard of Living

The standard of living depends on

  • Real GDP per person

    Real GDP per person =

    Real GDP divided by the population

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Growth in standard of living1

Growth of real GDP per person

Growth rate of real GDP

Growth rate of population

=

Growth of real GDP per person

=

5 percent – 1 percent

= 4 percent.

Growth in Standard of Living

The growth rate of real GDP per person can be calculated by using the formula:

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Decision tree2

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


Economic growth

Economic Growth

“… the limits to growth on this planet will be reached sometime within the next 100 years. The most probable result will be a sudden and uncontrollable decline in both population and industrial capacity.”

Comment

(The Limits to Growth, Meadows et al.; Universe, 1972)

#17

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Determinants of growth

Determinants of Growth

What causes growth?

Is growth sustainable?

Assume GDP is produced using three categories of inputs – labor, capital, and raw materials.

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Determinants of growth1

Determinants of Growth

  • If the number of aggregate hours of labor used increased, real GDP would ____________.

  • If the capital used in production increased, real GDP would ____________.

increase

increase

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Determinants of growth2

Determinants of Growth

  • If the amount of raw materials used in production increased, real GDP would _____________.

  • If labor productivity increased and the number of aggregate hours remained the same, real GDP would _____________.

increase

increase

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Graphing changes

Graphing changes

Axes?

Real

GDP

Aggregate Production

Aggregate Hours

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Graphing changes1

Graphing changes

Increase aggregate hours

Real

GDP

Aggregate Production

Aggregate Hours

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Graphing changes2

Graphing changes

Increase use of capital

Real

GDP

Aggregate Production

Aggregate Hours

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Graphing changes3

Graphing changes

Increase of raw materials

Real

GDP

Aggregate Production

Aggregate Hours

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Graphing changes4

Graphing changes

Increase labor productivity

Real

GDP

Aggregate Production

Aggregate Hours

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Extensive intensive growth

Extensive / Intensive Growth

Extensive and Intensive Growth

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Sustainable growth

Sustainable Growth

  • Are there limits to extensive growth?

  • Are there limits to intensive growth?

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Decision tree3

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


Economic growth1

Economic Growth

Growth Theories –

  • Compare and contrast

    • Classical growth theory

    • Neo-classical growth theory

    • New growth theory

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Comparing growth theories

Comparing Growth Theories

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Comparing growth theories1

Comparing Growth Theories

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Comparing growth theories2

Comparing Growth Theories

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Comparing growth theories3

Comparing Growth Theories

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Comparing growth theories4

Comparing Growth Theories

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Comparing growth theories5

Comparing Growth Theories

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Sustainable growth1

Sustainable Growth

  • Are there limits to growth?

  • Are there limits to extensive growth?

  • Are there limits to intensive growth?

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Summary classical

Summary - Classical

Classical Growth Theory

  • Increased productivity 

  • Increased GDP 

  • Reduced deaths and increased births 

  • Increased population 

  • Decrease in GDP per person

  • Population growth limits increases in human welfare

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Summary classical1

Summary - Classical

Classical – Key features

  • Increases in labor productivity are random and temporary

  • Changes in birth rate and life expectancy primary determinants of population

  • Increases in population limited by subsistence level

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Summary classical2

Summary - Classical

Classical Growth Theory – Prediction

  • Global Economy stagnates at subsistence level

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Summary neoclassical

Summary - Neoclassical

Neo-Classical Growth Theory

  • Technological advances 

  • Increased labor productivity 

  • Increase GDP 

  • Reduce deaths 

  • Reduce birth rates (women’s opt. cost)

  • Growth rate = population growth + productivity growth + accumulation of human capital

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Summary neoclassical1

Summary - Neoclassical

Neo-Classical – Key features

  • Technological advances occur by chance, but are sustainable

  • Change in population influenced by death rate & birth rate declines

  • Growth rate = population growth + productivity growth + accumulation of human capital

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Summary neoclassical2

Summary - Neoclassical

Neo-Classical – Prediction

  • Global Economy grows at a rate equal to technological change. National economies tend to converge.

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Summary new theory

Summary – New Theory

New Growth Theory

  • Education, R&D, & profit determine technological advances 

  • Increased labor productivity 

  • Increase GDP per person 

  • Reduce death rates 

  • Reduce birth rates (women’s opt. cost)

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Summary new theory1

Summary – New Theory

New Theory – Key features

  • Decisions on education, R&D, and profit potential determine the rate of technological advance

  • Change in population influenced by death rate & birth rate declines

  • Growth rate = population growth + productivity growth + accumulation of human capital

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Summary new theory2

Summary – New Theory

New Theory – Prediction

  • National economies grow at rates dependent on incentives (save, invest, etc.)

  • They will not necessarily converge.

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Decision tree4

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


Worksheet mc questions

Worksheet – MC questions

  • Which of the following is likely to increase the poverty in a country?

    • A decrease in population over time.

    • A decrease in the real GDP growth rate over time.

    • A decrease in the inflation rate over time.

    • An increase in the real GDP per person growth rate over time.

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Worksheet mc questions1

Worksheet – MC questions

  • If the U.S. population grew at a 0.9 percent during 1999 and real GDP grew at a 4.4 percent during the same period, what was the growth rate of real GDP per person?

    • –3.5 percent

    • 3.5 percent

    • 4.0 percent

    • 5.3 percent

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Worksheet mc questions2

Worksheet – MC questions

  • Last year, in a nation far to the South, real GDP was $90 million and 900,000 workers were employed. This year real GDP is $100 million and 950,000 workers are employed. Hence, labor productivity has

    • increased.

    • decreased.

    • remained constant.

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Worksheet mc questions3

Worksheet – MC questions

  • If Country A’s real GDP grows at a rate of 14 percent per year, how many years will it take for Country A’s real GDP to double ?

    • 5

    • 7

    • 10

    • 30

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Worksheet mc questions4

Worksheet – MC questions

  • Neoclassical growth theory predicts that real GDP will

    • remain at the subsistence level.

    • grow at a rate that is determined by the pace of technological change.

    • grow but at a rate that will slow as time progresses and population growth increases.

    • continue to grow because of the choices people make in the pursuit of profit.

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Worksheet t f questions

Worksheet – T/F questions

  • Support for structuring taxes to encourage innovation is found in neoclassical growth theory.

    False – In neoclassical growth theory, innovation and technological change are assumed random. Therefore, tax policies will not increase either. Support for this policy is found in the new growth theory.

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Worksheet t f questions1

Worksheet – T/F questions

  • New growth theory predicts that national growth rates will slowly converge over time.

    False – The “convergence” prediction is usually associated with the neoclassical theory of growth and the lack of evidence to support that predication was a stimulus to the development of the new theory of growth. Technically, the classical theory also predicts convergence, to subsistence levels.

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Worksheet real gdp

Worksheet – Real GDP

  • What is the per capita real GDP growth rate of Oz?

5% - 2% = 3%

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Worksheet real gdp1

Worksheet – Real GDP

  • How many years will it take the real GDP per capita of Oz to double, at this rate of growth?

Use the rule of 70

70 / 3 = 23.3 years

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Worksheet real gdp2

Worksheet – Real GDP

  • If real GDP in Oz is currently 20% larger than in Lilliput, how many years will it take Lilliput to catch up to Oz?

Lilliput will never catch up

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Worksheet real gdp3

Worksheet – Real GDP

  • Which country has the highest standard of living?

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Worksheet real gdp4

Worksheet – Real GDP

  • Which country has the fastest growing economy?

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Worksheet real gdp5

Worksheet – Real GDP

  • What is the growth rate in the standard of living in country #3?

1.6% - 0.14% = 1.46%

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Worksheet real gdp6

Worksheet – Real GDP

  • If these trends continue in country #1, what will the real GDP per capita be in 2003?

-0.6% - 0.49% = -1.09% It will be 1.09% LOWER

$30,200 – (0.0109)*$30200 = 0.9891*30200 = $29,871

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Worksheet match the theory

Worksheet – Match the Theory

  • Growth is measured by the percentage change in real GDP

  • Technical innovation results from choices

  • Human capital investment is key to increases in labor productivity

All three

New Growth Theory

New Growth Theory

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Worksheet match the theory1

Worksheet – Match the Theory

  • Prosperity leads to decreases in death rates and increases in birth rates

  • Prosperity leads to decreases in death rates and in birth rates

  • Productivity growth is essential to increases in living standards

Classical

Neoclassical

New Growth Theory

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Worksheet match the theory2

Worksheet – Match the Theory

  • The relationship between wage rates for women and birth rates is key

  • Increased productivity leads to no improvement in living standards

  • Investment in R & D increases economic growth

Neoclassical & New Growth Theory

Classical

New Growth Theory

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Worksheet match the theory3

Worksheet – Match the Theory

  • The role of profits in the economy is an important component

  • Romer one of the major proponents

  • Malthus one of the major proponents

New Growth Theory

New Growth Theory

Classical

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Decision tree5

Decision Tree

Student questions

Measuring Growth

Determinants of Economic Growth

Theories of Growth

Worksheet 07 Economic Growth

Q8

Q11

Q15


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