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Muenker Econ

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Justin Muenker

on 13 May 2011

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Transcript of Muenker Econ

Sources and Consequences of Economic Growth and Economic Development What is the difference between potential growth and actual growth? Potential growth occurs when there is an outward shift in the PPC and a rightward shift in the LRAS curve. This is a measure of supply potential Sources of economic growth 1. Natural factors 2. Human capital factors 3. Physical capital and technological factors 4. Institutional factors Anything that will increase the quantitiy and/or quality of a factor of production should lead to an increase in potential growth. For ex: Increasing the quantity of land For ex: Singapore increased its land area from 581.5 sq. kilometres to 697.2 in 1965 using landfill methods This represented a .03% land area increase Due to the cost and limited opportunity to increase natural resources, most countries choose to improve the quality of natural factors rather than the quantity Quantity of human capital can be increased or decreased through a variety of means Some examples of government control of population include immigration policies, encouraging population growth through incentives, or decreasing population growth through child limits. Due to difficulty controling population quantity, a bigger emphasis is put on human capital quality Physical capital includes factories, shops, machinery, and motor vehicles as well as social capital such as schools, roads, hospitals, and houses Quantity of physical capital is affected by level of saving, domestic investment, foreign and domestic government involvement. Quality of physical capital
Higher education
technology Capital widening:
Occurs when extra capital is used with an increased amount of labor, but the ratio of capital per worker doesn't change. When this occurs, total production will rise, but productivity (output per worker) is likely to stay the same Capital deepening:
Occurs when there is an increase in the amount of capital for each worker. This often means improvements in technology. Usually leads to improvement of labor productivity as well as increases in total production Physical capital enabling extraction, or improved extraction, of primary products (such as oil drilling or mining) may be important in terms of economic growth since it will increase the quantity of a factor of production In order for meaningful economic growth to occur, insitutional factors must be present and functional Consequences of economic growth Consequences to economic growth can be positive or negative 1) Higher incomes: Higher levels of economic growth can lead to higher GDP per capita 2) Improved economic indicators of welfare: Economic growth leads to higher averages in terms of indicators of welfare Life expectancy
Average years of schooling
Literacy rates 3) Higher government revenues: Increased GDP should see increased government revenues from taxation which allows for the government to (in theory) invest more in social services such as education, healthcare, and infrastructure 4) Creation of inequality: Even if the poor get a little more money, the gap between rich and poor is said to grow, since the rich reveive the majority of the gains 5) Negative externalities and lack of sustainabiilty: Economic growth often leads to pollution or other negative externalities As economies grow, demand for transportation, and energy grow. These demands are met by fossil fuels or other energy sources which often serve as negative externalities for a country Economist Herman Daly coined the phrase "uneconomic growth" which refers to an increase in production at the expense of resources and well being that is worth more than what is being made Sources of economic development Education Healthcare Infrastructure Political Stability
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