1 / 36

Chapter 3 Productivity and Growth

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.

roddy
Download Presentation

Chapter 3 Productivity and Growth

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 3Productivityand Growth These slides supplement the textbook, but should not replace reading the textbook

  2. Why is growth so important? Because things wear out, they deteriorate over time 2

  3. What type of growth is best? Slow and steady 3

  4. What are the two steps to increase productivity? • Save • Invest 4

  5. What are rules of the game? The formal and informal institutions that promote economic activity 5

  6. What are examples of rules of the game? The laws and customs of a country 6

  7. 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

  8. What is the“rule of man”? The practice of putting oneself above the law when one has the power to do so 8

  9. How does the rule of law and the rule of man relate to growth in Japan? • Save • Loan money to favored persons 9

  10. What is moral hazard? Companies which are not allowed to fail will have the incentive to take huge risks 10

  11. How does moral hazard relate to Japan? Japan has supported failing companies 11

  12. 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

  13. How can we increase GDP? More investment this year, higher GDP next year 13

  14. What is productivity? The ratio of a specific measure of output to a specific measure of input 14

  15. When doesproductivityincrease? When the units of output is more than the units of input 15

  16. 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

  17. Shifts in the Economy’s PPF An increase in productivity A' A Consumer goods F F' Capital goods 17

  18. What will happen if we do not grow? Unemployment will worsen 18

  19. Shifts in the Economy’s PPF A decrease in productivity A Consumer goods A'' F'' F Capital goods 19

  20. 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

  21. If we did away with machines, would more people have jobs? No, workers would be less productive without machines 21

  22. What is human capital? The accumulated knowledge, skill, and experience of the labor force 22

  23. What is innovation? A new way of doing something 23

  24. What is aspecialization of labor? Focusing an individual’s efforts on a particular product or a single task

  25. Why does the assembly line increase productivity? • Eliminates nonproductive activity • Repetition faster • Better use of capital 25

  26. How does the specialization of labor increase productivity?

  27. 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

  28. 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

  29. Why is America becoming less competitive around the world? Economies of scale are hampered internationally by government regulations – trade restrictions 29

  30. 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

  31. 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

  32. 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

  33. 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

  34. What is the concept of crowding out? The more the government borrows the less savings is available for business and consumers to borrow 34

  35. 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

  36. END

More Related