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Chapter 3 Productivity and Growth. These slides supplement the textbook, but should not replace reading the textbook. Why is growth so important?. Because things wear out, they deteriorate over time. 2. What type of growth is best?. Slow and steady. 3.

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Chapter 3 productivity and growth

Chapter 3Productivityand Growth

These slides supplement the textbook, but should not replace reading the textbook


Why is growth so important
Why is growth so important?

Because things wear out, they deteriorate over time

2


What type of growth is best
What type of growth is best?

Slow and steady

3



What are rules of the game
What are rules of the game?

The formal and informal institutions that promote economic activity

5


What are examples of rules of the game
What are examples of rules of the game?

The laws and customs of a country

6


What is the rule of law
What is the“rule of law”?

The willingness of a people to submit themselves to the law; there is a respect and adherence to the law

7


What is the rule of man
What is the“rule of man”?

The practice of putting oneself above the law when one has the power to do so

8


How does the rule of law and the rule of man relate to growth in japan
How does the rule of law and the rule of man relate to growth in Japan?

  • Save

  • Loan money to favored persons

9


What is moral hazard
What is moral hazard? growth in Japan?

Companies which are not allowed to fail will have the incentive to take huge risks

10


How does moral hazard relate to japan
How does moral hazard relate to Japan? growth in Japan?

Japan has supported failing companies

11


How do we measure growth
How do we measure growth? growth in Japan?

Gross Domestic Product (GDP) which is a measure of all new and final goods and services produced in any one year

12


How can we increase gdp
How can we increase GDP? growth in Japan?

More investment this year, higher GDP next year

13


What is productivity
What is productivity? growth in Japan?

The ratio of a specific measure of output to a specific measure of input

14


When does productivity increase
When does growth in Japan?productivityincrease?

When the units of output is more than the units of input

15


Why does an increase productivity lead to economic growth
Why does an increase productivity lead to economic growth? growth in Japan?

  • Lower costs lead to lower prices

  • the lower prices leads to an increase in buying power

  • the increase in aggregate demand leads to growth

16


Shifts in the Economy’s PPF growth in Japan?

An increase in productivity

A'

A

Consumer goods

F

F'

Capital goods

17


What will happen if we do not grow
What will happen if we do not grow? growth in Japan?

Unemployment will worsen

18


Shifts in the Economy’s PPF growth in Japan?

A decrease in productivity

A

Consumer goods

A''

F''

F

Capital goods

19


What factors lead to an increase in productivity
What factors lead to an increase in productivity? growth in Japan?

  • Inventions (more and better capital)

  • growth in human capital

  • Innovations

  • economies of scale

  • mobile labor force

20


If we did away with machines would more people have jobs
If we did away with machines, would more people have jobs? growth in Japan?

No, workers would be less productive without machines

21


What is human capital
What is human capital? growth in Japan?

The accumulated knowledge, skill, and experience of the labor force

22


What is innovation
What is innovation? growth in Japan?

A new way of doing something

23


What is a specialization of labor
What is a growth in Japan?specialization of labor?

Focusing an individual’s efforts on a particular product or a single task


Why does the assembly line increase productivity
Why does the assembly line increase productivity? growth in Japan?

  • Eliminates nonproductive activity

  • Repetition faster

  • Better use of capital

25



  • Takes advantage of individual natural abilities

  • Permits the introduction of labor-saving machinery

  • Reduces time required to shift between tasks


What does the term economies of scale mean
What does the term economies of scale mean? task

A companies average costs decrease over the long run as the company grows, growth can be global

28


Why is america becoming less competitive around the world
Why is America becoming less competitive around the world? task

Economies of scale are hampered internationally by government regulations – trade restrictions

29


What are some examples of government regulation
What are some examples of government regulation? task

  • Glass Steagall Act of 1933

  • Financial Services Modernization Act of 1999

  • Sarbanes-Oxley Act of 2002

  • 2700 page Health Care Bill 2010

  • Financial Reform Bill of 2010

  • The Volcker Rule 2010

  • Keystone XL Pipeline decision 2011

30


What does the housing market have to do with a mobile labor force
What does the housing market have to do with a mobile labor force?

Many people are upside down on their mortgages and cannot relocate very easily

31


What does our growing national debt have to do with growth
What does our growing national debt have to do with growth? force?

The more we pay in interest the less we have to invest, especially when so much of the interest is paid to foreigners

32


What does monetizing the debt have to do with growth
What does monetizing the debt have to do with growth? force?

Money creation leads to inflation and inflation distorts price signals, erodes buying power, and leads to more unemployment

33


What is the concept of crowding out
What is the concept of crowding out? force?

The more the government borrows the less savings is available for business and consumers to borrow

34


What happens to productivity as the economy slips into a recession
What happens to productivity as the economy slips into a recession?

It increases as the less productive workers are laid off and the more productive workers make up more of the labor force

35


END recession?


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