 |  Macroeconomics, 9/e Campbell R. McConnell,
University of Nebraska, Lincoln
Stanley L. Brue,
Pacific Lutheran University
Thomas P. Barbiero,
Ryerson University
Economic Growth and the New Economy
Chapter HighlightsCHAPTER 16- Economic growth—measured as either an increase in real output or an increase in real output per capita—
increases material abundance and raises a nation's standard of living.
- The supply factors in economic growth are (a) the quantity and quality of a nation's natural resources, (b)
the quantity and quality of its human resources, (c) its stock of capital facilities, and (d) its technology. Two
other factors—a sufficient level of aggregate demand and economic efficiency—are necessary for the economy
to realize its growth potential.
- The growth of production capacity is shown graphically as an outward shift of a nation's production possibilities
curve or a rightward shift of its long-run aggregate supply curve. Growth is realized when total
spending rises sufficiently to match the growth of production capacity.
- Since 1950 the annual growth rate of real GDP for Canada has averaged slightly more than 4 percent; the
annual growth rate of real GDP per capita has been over 2 percent.
- Canada's real GDP has grown partly because of increased inputs of labour and primarily because of
increases in the productivity of labour. The increases in productivity have resulted mainly from technological
progress, increases in the quantity of capital per worker, improvements in the quality of labour,
economies of scale, and an improved allocation of labour.
- Over long time periods, the growth of labour productivity underlies an economy's growth of real wages and
its standard of living. Many economists believe that Canada has achieved a New Economy of faster productivity
growth and higher rates of economic growth.
- The New Economy is based on (a) rapid technological change in the form of the microchip and information
technology, (b) increasing returns and lower per-unit costs, and (c) heightened global competition that holds
down prices.
- The main sources of increasing returns in the New Economy are (a) use of more specialized inputs as firms
grow, (b) the spreading of development costs, (c) simultaneous consumption by consumers, (d) network
effects, and (e) learning-by-doing. Increasing returns means higher productivity and lower per-unit production
costs.
- Those who champion the New Economy say that it has a lower natural rate of unemployment than the old
economy, can grow more rapidly without producing inflation, and generates higher tax revenues because
of faster growth of personal income.
- Skeptics of the New Economy urge a wait-and-see approach. They point out that surges in productivity and
real GDP growth have previously occurred during vigorous economic expansions but do not necessarily represent
long-lived trends.
- Critics of rapid growth say that it adds to environmental degradation, increases human stress, and exhausts
the earth's finite supply of natural resources. Defenders of rapid growth say that it is the primary path to the
rising living standards nearly universally desired by people, that it need not debase the environment, and
that there are no indications that we are running out of resources. Growth is based on the expansion and
application of human knowledge, which is limited only by human imagination.
|
|
2002 McGraw-Hill Higher Education