Final exam of macroeconomics
david123367
chiang4e_ch07pt1revised.pptxCHAPTER 18 SLIDE 1
Economic Growth
SLIDES CREATED BY ERIC CHIANG
7
ATHENAR / DREAMSTIME.COM
1
Describe how economic growth is measured using real GDP and real GDP per capita.
Use the Rule of 70 to approximate the number of years it takes for an economy’s output to double in size.
Explain the power of compounding in making small differences much larger over time.
Explain the difference between short-run growth and long-run growth.
CHAPTER OBJECTIVES
CHAPTER 18
SLIDE 2
2
Economic Growth
SLIDE 3
Economic growth can be represented in three ways.
By an upward slope in the trend GDP.
By an outward shift in the PPF.
By an increase (outward shift) in the LRAS.
CHAPTER 18
3
Economic Growth
SLIDE 4
Trend
Peak
Peak
Trough
Recession
Recovery
REAL GDP
TIME
CONTRACTION
EXPANSION
CHAPTER 16
4
Economic Growth
SLIDE 5
PPFB
LONG-RUN GROWTH
PPFA
CHAPTER 18
5
SLIDE 6
AGGREGATE PRICE LEVEL (P)
AGGREGATE OUTPUT (Q)
LRAS0
0
Q0
LRAS1
Q1
CHAPTER 20
ECONOMIC GROWTH
SRAS0
SRAS1
6
Economic Growth
SLIDE 7
Three questions:
Why is growth important?
How do we measure growth?
Where does growth come from and what choices can government make to generate growth?
CHAPTER 18
7
ECONOMIC GROWTH IS THE PRIMARY FACTOR IN EXPLAINING HOW WELL PEOPLE LIVE, THEIR STANDARD OF LIVING.
SLIDE 8
JAKE WYMAN/CORBIS
CHAPTER 18
8
SLIDE 9
LIVING
STANDARD OF
BETTER
ZRS MANAGEMENT
CHAPTER 18
9
SLIDE 10
CHANG’AN AVENUE, BEIJING, CHINA
1981
DEAN CONGER/CORBIS
CHAPTER 18
10
SLIDE 11
CHANG’AN AVENUE, BEIJING, CHINA
2011
TAO IMAGES LIMITED / ALAMY
CHAPTER 18
11
WHY IS ECONOMIC GROWTH IMPORTANT?
reduced poverty rates
improved health and longer life expectancies
greater investment in education and technology
SLIDE 12
Factors resulting from economic growth that contribute to the standard of living:
CHAPTER 18
12
SLIDE 13
ECONOMIC GROWTH IS MOST COMMONLY MEASURED BY REAL GDP AND REAL GDP PER CAPITA.
GROWTH
REAL GDP
WAYNE0216 | DREAMSTIME.COM
CHAPTER 18
13
REAL GDP AND REAL GDP PER CAPITA
SLIDE 14
REAL GDP
TOTAL OUTPUT IN A YEAR MEASURED IN CONSTANT-YEAR PRICES
REAL GDP PER CAPITA
REAL GDP DIVIDED BY POPULATION
CHAPTER 18
14
SLIDE 15
AGGREGATE PRICE LEVEL (P)
AGGREGATE OUTPUT (Q)
LRAS0
0
Q0
LRAS1
Q1
CHAPTER 20
MEASURING REAL GDP GROWTH
Economic growth means there has been an increase in real GDP.
15
MEASURING REAL GDP GROWTH
SLIDE 16
Compares GDP at the current quarter with the previous year; provides trend in growth for the entire year.
ANNUALIZED RATE
YEAR-OVER-YEAR RATE
The quarterly change in GDP is multiplied by 4; highlights seasonal fluctuations in growth.
The Bureau of Economic Analysis (BEA) provides quarterly reports on changes in U.S. GDP. The reports reflect the:
CHAPTER 18
16
SLIDE 17
COMPOUNDING
COMPOUNDING
COMPOUNDING
COMPOUNDING
POWER OF
COMPOUNDING ALLOWS SMALL RATES OF GROWTH TO TURN INTO SUBSTANTIAL INCREASES IN INCOME OVER TIME.
ERIC CHIANG
CHAPTER 18
17
SLIDE 18
DEPOSITING $1,000 AT A 5% ANNUAL RETURN COMPARED TO A 10% ANNUAL RETURN MAKES A BIG DIFFERENCE OVER 35 YEARS.
5%
10%
= $5,516
= $28,102
BRIAN SIKORA/SHUTTERSTOCK
CHAPTER 18
18
SLIDE 19
70 / Annual Growth (%)
THE RULE OF 70 CAN BE USED TO ESTIMATE THE NUMBER OF YEARS FOR A VALUE TO DOUBLE.
CAMMERAYDAVE/DREAMSTIME.COM
CHAPTER 18
19
SLIDE 20
RULE OF 70
10% ANNUAL GAIN
70 / 10 =
7 years
TO DOUBLE VALUE
CAMMERAYDAVE/DREAMSTIME.COM
CHAPTER 18
20
SLIDE 21
RULE OF 70
5% ANNUAL GAIN
70 / 5 =
14 years
TO DOUBLE VALUE
CAMMERAYDAVE/DREAMSTIME.COM
CHAPTER 18
21
OCCURS WHEN AN ECONOMY MAKES USE OF EXISTING BUT UNDERUTILIZED RESOURCES. IT IS COMMON DURING RECOVERY FROM A RECESSION.
OCCURS WHEN AN ECONOMY FINDS NEW RESOURCES OR FINDS WAYS TO USE EXISTING RESOURCES BETTER.
SHORT-RUN EXPANSION
LONG-RUN GROWTH
SLIDE 22
CHAPTER 18
22
LONG-RUN GROWTH
PPFA
Short-run expansion is shown as a movement toward a PPF, while long-run growth is shown as an expansion of the PPF.
SHORT-RUN EXPANSION
SLIDE 23
a
b
PPFB
LONG-RUN GROWTH
PPFA
CHAPTER 18
23
SLIDE 24
THE DISCOVERY OF HUGE NATURAL GAS DEPOSITS IN THE UNITED STATES CAN CONTRIBUTE TO LONG-RUN GROWTH.
ERIC CHIANG
CHAPTER 18
24
KEY CONCEPTS
Economic growth
Compounding
Real GDP
Real GDP per capita
Rule of 70
SLIDE 25
CHAPTER 18
IF A COUNTRY GROWS AT 3% PER YEAR, APPROXIMATELY HOW MANY YEARS WILL IT TAKE FOR ITS GDP TO DOUBLE?
B
C
A
3 YEARS
10 YEARS
23 YEARS
D
E
33 YEARS
70 YEARS
SLIDE 26
CHAPTER 18
Answer: C
26
IF A COUNTRY GROWS AT 3% PER YEAR, APPROXIMATELY HOW MANY YEARS WILL IT TAKE FOR ITS GDP TO DOUBLE? (Answer)
B
C
A
3 YEARS
10 YEARS
23 YEARS (Correct Answer)
D
E
33 YEARS
70 YEARS
SLIDE 27
CHAPTER 18
Answer: C
27
U.S. GDP IS DOUBLE CHINA’S, BUT THE GROWTH RATE IS 7% IN CHINA AND 3% IN THE UNITED STATES. AT THAT RATE, WHEN WILL CHINA’S GDP SURPASS THAT OF THE UNITED STATES?
PRACTICE QUESTION
SLIDE 28
ERIC CHIANG
CHAPTER 18
Answer: If the United States grows 3% per year, it doubles its GDP in about 23 years. If China grows 7% per year, it doubles its GDP in about 10 years. If China’s GDP is half of that of the United States, it will reach current U.S. GDP in 10 years. Although the United States is still growing throughout this period, China will likely surpass U.S. GDP soon after the 10 years, assuming all growth rates remain the same as today.
28
7
END OF CHAPTER
SLIDES CREATED BY ERIC CHIANG
CHAPTER 18
SLIDE 45
Tshooter/Shutterstock; Anton Balazh/Shutterstock
29
