Factors that Lead to Economic Growth

Factors that Lead to Economic Growth

Unit 10 NotesUnit 10 Notes

Economic GrowthEconomic GrowthEconomic GrowthEconomic Growth There are 4 factors of production that There are 4 factors of production that

influence economic growth within a influence economic growth within a country:country: Investment in Human CapitalInvestment in Human Capital Investment in Capital GoodsInvestment in Capital Goods Natural Resources availableNatural Resources available EntrepreneurshipEntrepreneurship

The presence or absence of these 4 The presence or absence of these 4 factors determine the country’s Gross factors determine the country’s Gross Domestic Product (GDP) for the yearDomestic Product (GDP) for the year

There are 4 factors of production that There are 4 factors of production that influence economic growth within a influence economic growth within a country:country: Investment in Human CapitalInvestment in Human Capital Investment in Capital GoodsInvestment in Capital Goods Natural Resources availableNatural Resources available EntrepreneurshipEntrepreneurship

The presence or absence of these 4 The presence or absence of these 4 factors determine the country’s Gross factors determine the country’s Gross Domestic Product (GDP) for the yearDomestic Product (GDP) for the year

What is Human Capital?What is Human Capital?

All of the skills, talents, education, and All of the skills, talents, education, and abilities that human workers possess---abilities that human workers possess---and the value that they bring to the and the value that they bring to the marketplacemarketplace Examples: computer/reading/writing/math Examples: computer/reading/writing/math

skills, talents in music/sports/acting, ability skills, talents in music/sports/acting, ability to follow directions, ability to serve as group to follow directions, ability to serve as group leader & cooperate with group membersleader & cooperate with group members

A country’s Literacy Rate impacts A country’s Literacy Rate impacts Human Capital--the percent of the Human Capital--the percent of the population over 15 that can read/writepopulation over 15 that can read/write

All of the skills, talents, education, and All of the skills, talents, education, and abilities that human workers possess---abilities that human workers possess---and the value that they bring to the and the value that they bring to the marketplacemarketplace Examples: computer/reading/writing/math Examples: computer/reading/writing/math

skills, talents in music/sports/acting, ability skills, talents in music/sports/acting, ability to follow directions, ability to serve as group to follow directions, ability to serve as group leader & cooperate with group membersleader & cooperate with group members

A country’s Literacy Rate impacts A country’s Literacy Rate impacts Human Capital--the percent of the Human Capital--the percent of the population over 15 that can read/writepopulation over 15 that can read/write

How does Human Capital How does Human Capital Influence Economic Influence Economic

Growth?Growth?

How does Human Capital How does Human Capital Influence Economic Influence Economic

Growth?Growth? Nations that invest in the health, Nations that invest in the health,

education, & training of their people education, & training of their people will have a more valuable workforce will have a more valuable workforce that produces more goods & servicesthat produces more goods & services

People that have training are more People that have training are more likely to contribute to technological likely to contribute to technological advances, which leads to finding advances, which leads to finding better uses of natural resources & better uses of natural resources & producing more goodsproducing more goods

Nations that invest in the health, Nations that invest in the health, education, & training of their people education, & training of their people will have a more valuable workforce will have a more valuable workforce that produces more goods & servicesthat produces more goods & services

People that have training are more People that have training are more likely to contribute to technological likely to contribute to technological advances, which leads to finding advances, which leads to finding better uses of natural resources & better uses of natural resources & producing more goodsproducing more goods

What are Capital Goods?What are Capital Goods?What are Capital Goods?What are Capital Goods?

All of the goods that are produced All of the goods that are produced in the country and then used to in the country and then used to make other goods & servicesmake other goods & services Examples: tools, equipment, Examples: tools, equipment,

factories, technology, computers, factories, technology, computers, lumber, machinery, etc.lumber, machinery, etc.

What are some capital goods used in What are some capital goods used in our classroom?our classroom?

All of the goods that are produced All of the goods that are produced in the country and then used to in the country and then used to make other goods & servicesmake other goods & services Examples: tools, equipment, Examples: tools, equipment,

factories, technology, computers, factories, technology, computers, lumber, machinery, etc.lumber, machinery, etc.

What are some capital goods used in What are some capital goods used in our classroom?our classroom?

How do Capital Goods How do Capital Goods influence Economic influence Economic

Growth?Growth?

How do Capital Goods How do Capital Goods influence Economic influence Economic

Growth?Growth? The more Capital Goods a country The more Capital Goods a country

has = the more goods & services has = the more goods & services they are able to producethey are able to produce

Money is NOT a capital good, but Money is NOT a capital good, but rather a medium of exchange!rather a medium of exchange!

The more Capital Goods a country The more Capital Goods a country has = the more goods & services has = the more goods & services they are able to producethey are able to produce

Money is NOT a capital good, but Money is NOT a capital good, but rather a medium of exchange!rather a medium of exchange!

What are Natural What are Natural Resources?Resources?

What are Natural What are Natural Resources?Resources?

All of the things found in or on the All of the things found in or on the earth; “gifts of nature”earth; “gifts of nature”

All resources are limitedAll resources are limited Examples: land, water, sun, Examples: land, water, sun,

plants, time, air, minerals, oil, etc.plants, time, air, minerals, oil, etc.

All of the things found in or on the All of the things found in or on the earth; “gifts of nature”earth; “gifts of nature”

All resources are limitedAll resources are limited Examples: land, water, sun, Examples: land, water, sun,

plants, time, air, minerals, oil, etc.plants, time, air, minerals, oil, etc.

How do Natural How do Natural Resources Influence Resources Influence Economic Growth?Economic Growth?

How do Natural How do Natural Resources Influence Resources Influence Economic Growth?Economic Growth?

Countries that have a lot of Countries that have a lot of natural resources are able to use natural resources are able to use them to produce goods & services them to produce goods & services cheaper than a country that has cheaper than a country that has to import natural resourcesto import natural resources

Countries that have a lot of Countries that have a lot of natural resources are able to use natural resources are able to use them to produce goods & services them to produce goods & services cheaper than a country that has cheaper than a country that has to import natural resourcesto import natural resources

What is What is Entrepreneurship?Entrepreneurship?

What is What is Entrepreneurship?Entrepreneurship?

Entrepreneurs have 2 characteristics that make Entrepreneurs have 2 characteristics that make them different from the rest of the labor force:them different from the rest of the labor force: 1. innovative (have creative ideas)1. innovative (have creative ideas) 2. risk taker (use limited resources in an 2. risk taker (use limited resources in an

innovative way in hopes that people will buy innovative way in hopes that people will buy the product)the product)

It can be several things:It can be several things: Starting your own businessStarting your own business Inventing something newInventing something new Changing the way something was previously Changing the way something was previously

done so that it works betterdone so that it works better

Entrepreneurs have 2 characteristics that make Entrepreneurs have 2 characteristics that make them different from the rest of the labor force:them different from the rest of the labor force: 1. innovative (have creative ideas)1. innovative (have creative ideas) 2. risk taker (use limited resources in an 2. risk taker (use limited resources in an

innovative way in hopes that people will buy innovative way in hopes that people will buy the product)the product)

It can be several things:It can be several things: Starting your own businessStarting your own business Inventing something newInventing something new Changing the way something was previously Changing the way something was previously

done so that it works betterdone so that it works better

How does How does Entrepreneurship Entrepreneurship

Influence Economic Influence Economic Growth?Growth?

How does How does Entrepreneurship Entrepreneurship

Influence Economic Influence Economic Growth?Growth? Entrepreneurship creates jobs Entrepreneurship creates jobs

and lessens unemploymentand lessens unemployment Encourages people to take risks, Encourages people to take risks,

and in doing so, they’ve created and in doing so, they’ve created better healthcare, education, & better healthcare, education, & welfare programswelfare programs

The more entrepreneurs a The more entrepreneurs a country has, the higher the country has, the higher the country’s GDP will be…country’s GDP will be…

Entrepreneurship creates jobs Entrepreneurship creates jobs and lessens unemploymentand lessens unemployment

Encourages people to take risks, Encourages people to take risks, and in doing so, they’ve created and in doing so, they’ve created better healthcare, education, & better healthcare, education, & welfare programswelfare programs

The more entrepreneurs a The more entrepreneurs a country has, the higher the country has, the higher the country’s GDP will be…country’s GDP will be…

How is Economic Growth How is Economic Growth Measured?Measured?

How is Economic Growth How is Economic Growth Measured?Measured?

Economic growth in a country is Economic growth in a country is measured by the country’s Gross measured by the country’s Gross Domestic Product (GDP) in one Domestic Product (GDP) in one yearyear

GDP = the total amount of final GDP = the total amount of final goods and services produced in goods and services produced in one year within a countryone year within a country

Economic growth in a country is Economic growth in a country is measured by the country’s Gross measured by the country’s Gross Domestic Product (GDP) in one Domestic Product (GDP) in one yearyear

GDP = the total amount of final GDP = the total amount of final goods and services produced in goods and services produced in one year within a countryone year within a country

Gross Domestic ProductGross Domestic ProductGross Domestic ProductGross Domestic Product

GDP is a domestic measurement GDP is a domestic measurement because it measures only what has because it measures only what has been produced within the country--been produced within the country--this doesn’t include products that this doesn’t include products that are imported.are imported.

It is much better for the economy of It is much better for the economy of a country to produce its own goods a country to produce its own goods and services (this increases the and services (this increases the country’s GDP).country’s GDP).

GDP is a domestic measurement GDP is a domestic measurement because it measures only what has because it measures only what has been produced within the country--been produced within the country--this doesn’t include products that this doesn’t include products that are imported.are imported.

It is much better for the economy of It is much better for the economy of a country to produce its own goods a country to produce its own goods and services (this increases the and services (this increases the country’s GDP).country’s GDP).

Gross Domestic Product

Gross Domestic Product

Measuring the GDP each year Measuring the GDP each year can:can: Compare one country’s economy to Compare one country’s economy to

anotheranother Check a country’s economic Check a country’s economic

progress over timeprogress over time Show if the economy is growing or Show if the economy is growing or

not not

Measuring the GDP each year Measuring the GDP each year can:can: Compare one country’s economy to Compare one country’s economy to

anotheranother Check a country’s economic Check a country’s economic

progress over timeprogress over time Show if the economy is growing or Show if the economy is growing or

not not

Standard of LivingStandard of Living The higher a country’s GDP = a

better standard of living for the people within the country

In order for a country to have an increasing GDP, it must invest in human capital through education & training, and it must produce goods that have value to be sold within the country or exported.

The higher a country’s GDP = a better standard of living for the people within the country

In order for a country to have an increasing GDP, it must invest in human capital through education & training, and it must produce goods that have value to be sold within the country or exported.

SummarySummary

To encourage economic growth To encourage economic growth and raise the living standards of and raise the living standards of its citizens, there must be its citizens, there must be investment in human capital and investment in human capital and capital goods. capital goods.

Economic growth is measured by Economic growth is measured by increases in real capital per GDP increases in real capital per GDP over time.over time.

To encourage economic growth To encourage economic growth and raise the living standards of and raise the living standards of its citizens, there must be its citizens, there must be investment in human capital and investment in human capital and capital goods. capital goods.

Economic growth is measured by Economic growth is measured by increases in real capital per GDP increases in real capital per GDP over time.over time.

How large a nation’s GDP can be How large a nation’s GDP can be is determined by the availability is determined by the availability and quality of its natural, human, and quality of its natural, human, and capital resources.and capital resources.

To increase economic growth and To increase economic growth and per capita GDP over time requires per capita GDP over time requires investments in both physical investments in both physical capital (factories, machines) and capital (factories, machines) and human capital (education, human capital (education, training, skills of labor force).training, skills of labor force).

How large a nation’s GDP can be How large a nation’s GDP can be is determined by the availability is determined by the availability and quality of its natural, human, and quality of its natural, human, and capital resources.and capital resources.

To increase economic growth and To increase economic growth and per capita GDP over time requires per capita GDP over time requires investments in both physical investments in both physical capital (factories, machines) and capital (factories, machines) and human capital (education, human capital (education, training, skills of labor force).training, skills of labor force).