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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 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?

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?

Japan has supported failing companies

11

how do we measure growth
How do we measure growth?

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?

More investment this year, higher GDP next year

13

what is productivity
What is productivity?

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

14

when does productivity increase
When doesproductivityincrease?

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?
  • 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

slide17

Shifts in the Economy’s PPF

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?

Unemployment will worsen

18

slide19

Shifts in the Economy’s PPF

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?
  • 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?

No, workers would be less productive without machines

21

what is human capital
What is human capital?

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

22

what is innovation
What is innovation?

A new way of doing something

23

what is a specialization of labor
What is aspecialization 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?
  • Eliminates nonproductive activity
  • Repetition faster
  • Better use of capital

25

slide27

Allows workers to develop more experience at a particular task

  • 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?

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?

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?
  • 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?

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?

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?

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

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