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ECON102: Principles of Macroeconomics

Unit 8: Economic Growth   *What determines economic growth?  Is it an increase in land use or capital?  What role does productivity play in economic growth?  What public policies are best for promoting economic growth – and which are worst?  This is the stuff of newspaper headlines and public policy debates.  In this unit, we will address these and other issues pertaining to economic growth.

According to macroeconomics, an economic system refers to the process by which inputs (capital, land, and labor) are transformed into certain outputs (the goods and services people wish to purchase).  The political and legal environment under which economic activity takes place largely determines whether or not the economy expands and grows.  Unstable political climates, confiscatory taxation or burdensome regulations will tend to restrict production and trade.  In a situation where property and contracts are respected, specializations and innovations in technology are occurring, and investment spending is rising, the economy grows and both investment goods and consumption goods increase.*

Unit 8 Time Advisory
This unit should take you approximately 8 hours to complete.

☐    Subunit 8.1: 1 hour

☐    Subunit 8.2: 2 hours

☐    Subunit 8.3: 0.5 hours

☐    Subunit 8.4: 0.5 hours

☐    Assessments: 4 hours (Please spend no more than 2 hours on each quiz.)

Unit8 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Define economic growth and describe the determinants of economic growth. - Distinguish between, describe, and analyze the classical, neoclassical, and endogenous theories of economic growth. - Learn the closed economy Solow model. - Explain how a country’s standard of living depends on its saving and population growth rates. - Apply the “Golden Rule” to find the optimal savings rate and capital stock.

8.1 Introduction to Economic Growth   - Reading: State University of New York at Oswego: Professor John Kane’s Lecture Notes on Principles of Macroeconomics: “Economic Growth” Link: State University of New York at Oswego: Professor John Kane’s Lecture Notes on Principles of Macroeconomics: “Economic Growth” (HTML)

 Instructions: Read this material in its entirety to for a summary
of how aggregate output is measured using GDP and other related
macroeconomic variables.  

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displayed on the webpage above.
  • Reading: PEOI.org: John Petroff’s Macroeconomics: “Chapter 15: Economic Growth” Link: PEOI.org: John Petroff’s Macroeconomics:Chapter 15: Economic Growth” (PDF)
     
    Instructions: Complete the linked reading, keeping in mind that economic growth is the sum total of all the components of exploring, discovering, solving problems, sharing ideas, and solving problems of a macroeconomic system.  The author’s presentation of economic growth will serve as a nice wrap-up of the various components studied in macroeconomics.
     
    Terms of Use: The article above is released under a Creative Commons Attribution-NonCommercial-Share-Alike License.  You can find the original version of this article here.

  • Reading: biz/ed’s Virtual Worlds: “Costs of Growth - Who Pays?”

    Link: biz/ed’s Virtual Worlds: “Costs of Growth - Who Pays?” (HTML)

    Instructions: Read this article to learn about the costs associated with growth.

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8.2 Sources of Economic Growth   - Reading: biz/ed’s Virtual Worlds: “Sources of Growth - Where Does It Come From?”

Link: biz/ed’s *Virtual Worlds*: [“Sources of Growth - Where Does It
Come
From?”](http://www.bized.co.uk/virtual/economy/policy/outcomes/gdp/growth3.htm) (HTML)  

 Instructions: Read this article to learn about the conditions
needed for economic growth.  

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8.2.1 Labor   Note: Labor can be defined as a resource of physical talents, intellectual talents, and efforts used to produce goods and services.

8.2.2 Capital   Note: Capital can be defined as resources, such as buildings, machinery, and equipment that are used to produce goods and services.  Capital goods are non-labor intensive.

8.2.3 Human Capital (or Entrepreneurial Talent)   Note: Human capital or entrepreneurial talent are the intellectual properties and intellectual training that enables a person to be more productive.

8.2.4 Productivity   Note: Productivity involves the lowest production cost of a good or service.  In other words, the productivity of labor is determined by dividing total output by the costs of the input (labor resource).

8.3 Growth Theories   - Reading: Bookboon: Peter Jochumzen’s Essentials of Macroeconomics

Link: Bookboon: Peter Jochumzen’s *[Essentials of
Macroeconomics](http://bookboon.com/us/textbooks/economics/macroeconimics-uk)* (PDF)  

 Instructions: Download this free textbook.  Scroll down to “Chapter
9” on page 59 to learn about theories pertaining to Economic
Growth.  

 This chapter covers the definition of economic growth, the
relationship between production function and growth and the
subsequent models of growth-the classical model, the neo-classical
model and the endogenous growth model.  

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  • Reading: Worth Publishers: N. Gregory Mankiw’s Macroeconomics, 5th ed.: “Student Tutorial: Chapters 7 and 8”

    Link: Worth Publishers: N. Gregory Mankiw’s Macroeconomics, 5th ed.: “Student Tutorial: Chapters 7 and 8” (PowerPoint)

    Instructions: Click on “Chapter 7: Economic Growth I” and “Chapter 8: Economic Growth II” to study the theory of economic growth, paying particular attention to the Solow model.

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8.4 US Economic Growth   - Reading: The Saylor Foundation: EconomyWatch’s “U.S. Economic Profile” Link: The Saylor Foundation: EconomyWatch’s “U.S. Economic Profile” (PDF)

 Instructions: Please read this article on the trend of real GDP
growth rate in the United States.  

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  • Reading: Board of Governors of the Federal Reserve System: Chairman Ben S. Bernanke’s “Speech Transcript: U.S. Economic Growth Outlook”

    Link: Board of Governors of the Federal Reserve System: Chairman Ben S. Bernanke’s “Speech Transcript: U.S. Economic Growth Outlook” (PDF)

    Instructions: Read the transcript of Federal Reserve Chairman Ben S. Bernanke’s speech from the International Monetary Conference in Atlanta, Georgia in 2011.  It provides an excellent illustration of the ways in which the economies of the world are linked.  In his speech, Bernanke shares views on macroeconomic indicators including aggregate output, GDP, unemployment, and inflation.  He also discusses the ways in which economic growth in the U.S. is affected.

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Unit 8 Assessment   - Assessment: Econ100’s “Chapter 11: Economic Growth Quiz”

Link: Econ100’s [“Chapter 11: Economic Growth
Quiz”](http://www.econ100.com/usa/mac5e/index.html) (HTML)  

 Instructions: Click on the “Quiz” tab on the left hand side menu
and then go to “Chapter 11” to take the quiz.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.