Produksi dan

Pertumbuhan Ekonomi
Ahmad Fikri Aulia
7 Desember 2023
 Apa yang telah dipelajari?
• Definisi PDB
• Pendekatan perhitungan PDB:
Pendapatan vs pengeluaran
• PDB nominal vs PDB riil
• Pendekatan perhitungan inflasi:
Deflator PDB vs IHK
• Suku bunga nominal vs suku bunga riil

2
 Apa yang akan dipelajari hari ini?
• Pertumbuhan ekonomi
• Produktivitas dan determinannya
• Fungsi produksi
• Kebijakan publik yang mempengaruhi
pertumbuhan ekonomi
• Institusi keuangan: Pasar keuangan dan
perantara keuangan
• Tabungan dan investasi
• The market for loanable fund
3
 N. GREGORY MANKIW
PRINCIPLES OF

ECONOMICS
Eight Edition

CHAPTER

17 Production and Growth

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Eastern Illinois University
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4
management system for classroom use.
 Look for the answers to these questions:
• What are the facts about living standards
and growth rates around the world?
• Why does productivity matter for living
standards?
• What determines productivity and its growth
rate?
• How can public policy affect growth and
living standards?

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 A Picture Is Worth a Thousand Statistics
A typical family with all their possessions in
the U.K., an advanced economy.

GDP per capita

= $39,040
Child mortality
rate = 0.4%
Access to
modern sanitation
facilities = 100%
Educational attainment =60% enrolled in higher education
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 A Picture Is Worth a Thousand Statistics
A typical family with all their possessions in
Mexico, a middle income country

GDP per capita

= $16,640
Child mortality
rate = 1.3%
Access to
modern sanitation
facilities = 85%
Educational attainment =30%
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 A Picture Is Worth a Thousand Statistics
A typical family with all their possessions in
Mali, a poor country

GDP per capita

= $1,510
Child mortality
rate = 11.5%
Access to
modern sanitation
facilities = 25%
Educational attainment =7%
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 Incomes and Growth Around the World

FACT 1: Vast differences in living standards around the world.

FACT 2: Great variation in growth rates across countries.
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 Economic Growth around the World
• Because of differences in growth rates
– Ranking of countries by income changes
substantially over time
• Poor countries are not necessarily doomed to
poverty forever, e.g. Singapore incomes were
low in 1960 and are quite high now
• Rich countries can’t take their status for
granted: They may be overtaken by poorer
but faster-growing countries

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 Economic Growth around the World
• Questions:
– Why are some countries richer than
others?
– Why do some countries grow quickly while
others seem stuck in a poverty trap?
– What policies may help raise growth rates
and long-run living standards?

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 Productivity
A country’s standard of living depends on
its ability to produce goods and services
• Productivity
– Quantity of goods and services
– Produced from each unit of labor input
– Productivity = Y/L (output per worker),
where
• Y = real GDP = quantity of output produced
• L = quantity of labor
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 Productivity
• Why productivity is so important
– Key determinant of living standards
• When a nation’s workers are very productive,
real GDP is large and incomes are high
– Growth in productivity is the key
determinant of growth in living standards
• When productivity grows rapidly, so do living
standards
– An economy’s income is the economy’s
output
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 Determinants of Productivity
• Physical capital, K
– Stock of equipment and structures used to
produce goods and services
• Physical capital per worker, K/L
– Productivity is higher when the average
worker has more capital (machines,
equipment, etc.).
• An increase in K/L causes an increase in Y/L

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 Determinants of Productivity
• Human capital, H
– Knowledge and skills workers acquire
through education, training, and
experience
• Human capital per worker, H/L
– Productivity is higher when the average
worker has more human capital
(education, skills, etc.).
• An increase in H/L causes an increase in Y/L.

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 Determinants of Productivity
• Natural resources, N
– Inputs into production that nature provides
(land, rivers, and mineral deposits)
• Natural resources per worker, N/L
– Other things equal, more N allows a
country to produce more Y
• An increase in N/L causes an increase in Y/L

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 Determinants of Productivity
• Technological knowledge
– Society’s understanding of the best ways
to produce goods and services
– Technological progress means:
• A faster computer, a higher-definition TV, or a
smaller cell phone
• Also, any advance in knowledge that boosts
productivity: allows society to get more output
from its resources
• e.g., Henry Ford and the assembly line.
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 Determinants of Productivity
Technological knowledge vs. Human capital
• Technological knowledge
– Refers to society’s understanding of how
to produce goods and services
• Human capital
– Results from the effort people expend to
acquire this knowledge
• Both are important for productivity

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 The Production Function
• The production function Y = A F(L, K, H, N)
– A graph or equation showing the relation
between output and inputs
– F( ) is a function that shows how inputs are
combined to produce output
– “A” is the level of technology
– “A” multiplies the function F( ), so improvements
in technology (increases in “A”) allow more
output (Y) to be produced from any given
combination of inputs.

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 The Production Function Y = A F(L, K, H, N)
• The production function has the property
constant returns to scale:
– Changing all inputs by the same percentage
causes output to change by that percentage.
• Doubling all inputs (multiplying each by 2)
causes output to double:
2Y = A F(2L, 2K, 2H, 2N)
• Increasing all inputs 10% (multiplying each
by 1.1) causes output to increase by 10%:
1.1Y = A F(1.1L, 1.1K, 1.1H, 1.1N)

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 The Production Function Y = A F(L, K, H, N)
• If we multiply each input by 1/L, then
output is multiplied by 1/L:
Y/L = A F(1, K/L, H/L, N/L)
• This equation shows that productivity (Y/L,
output per worker) depends on:
– The level of technology, A
– Physical capital per worker, K/L
– Human capital per worker, H/L
– Natural resources per worker, N,L

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 Active Learning 1 Discussion question
Which of the following policies do you think would
be most effective at boosting growth and living
standards in a poor country over the long run?
a. Offer tax incentives for investment by local firms
b. Offer tax incentives for investment by foreign firms
c. Give cash payments for good school attendance
d. Crack down on government corruption
e. Restrict imports to protect domestic industries
f. Allow free trade
g. Give away condoms

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 Economic Growth and Public Policy
• The ways public policy can affect
long-run growth in productivity and living
standards:
• Saving and investment
• Diminishing returns and the catch-up effect
• Investment from abroad; Education
• Health and nutrition
• Property rights and political stability
• Free trade; Research and development
• Population growth
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 Saving and Investment
• Raise future productivity
– Invest more current resources in the
production of capital, K
– Trade-off: since resources scarce,
producing more capital requires producing
fewer consumption goods
– Reducing consumption = increasing saving
• This extra saving funds the production of
investment goods (More details in the next chapter.)

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 Diminishing Returns
• Policies that raise saving and investment
– Fewer resources are used to make
consumption goods
– More resources: to make capital goods
– K increases, rising productivity and living
standards
– This faster growth is temporary, due to
diminishing returns to capital: As K rises, the
extra output from an additional unit of K falls….

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 The Production Function & Diminishing Returns
Output per worker
(productivity)
Y/L
If workers
have little K,
giving them more
increases their
productivity a lot.

If workers already
have a lot of K,
giving them more
increases
K/L
productivity
fairly little. Capital per worker
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 The catch-up effect: the property whereby poor
countries tend to grow more rapidly than rich ones
Y/L

Rich country’s
growth

Poor country’s
growth

K/L
Poor country
starts here Rich country starts here
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 Example of the Catch-Up Effect
• 1960–1990
– The U.S. and S. Korea devoted a similar
share of GDP to investment
• Expect: similar growth performance
– But growth was >6% in Korea and only
2% in the U.S.
– Explanation: the catch-up effect
• In 1960, K/L was far smaller in Korea than
in the U.S., hence Korea grew faster

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 Investment from Abroad
• Investment from abroad
– Another way for a country to invest in new
capital
– Foreign direct investment
• Capital investment that is owned and
operated by a foreign entity
– Foreign portfolio investment
• Investment financed with foreign money but
operated by domestic residents

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 Investment from Abroad
• Benefits from investment from abroad
– Some benefits flow back to the foreign capital
owners
– Increase the economy’s stock of capital
– Higher productivity and higher wages
– State-of-the-art technologies developed in
other countries
– Especially good for poor countries that
cannot generate enough saving to fund
investment projects themselves
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 Education
• Education, investment in human capital
– Gap between wages of educated and
uneducated workers
• In the U.S., each year of schooling raises a
worker’s wage by 10%
– Opportunity cost: wages forgone
• Spending a year in school requires sacrificing
a year’s wages now to have higher wages
later
• Problem for poor countries: Brain drain
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 Health and Nutrition
• Health care expenditure
– Is a type of investment in human capital:
healthier workers are more productive
• In countries with significant malnourishment,
raising workers’ caloric intake raises productivity:
– 1962–1995, caloric consumption rose 44% in S.
Korea, and economic growth was spectacular.
– Nobel winner Robert Fogel: 30% of Great
Britain’s growth from 1790–1980 was due to
improved nutrition

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 Health and Nutrition
• Vicious circle in poor countries
– Poor countries are poor because their
populations are not healthy
– Populations are not healthy because they are
poor and cannot afford better healthcare and
nutrition
• Virtuous circle
– Policies that lead to more rapid economic
growth would naturally improve health
outcomes, which in turn would further promote
economic growth
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 Property Rights and Political Stability
Markets are usually a good way to organize
economic activity
• To foster economic growth
– Protect property rights (the ability of people to
exercise authority over the resources they own)
• Courts – enforce property rights
– Promote political stability
• Property rights:
– Prerequisite for the price system to work
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 Property Rights and Political Stability
• Lack of property rights, a major problem
– Contracts are hard to enforce
– Fraud, corruption often goes unpunished
• Firms must bribe government officials for
permits
• Political instability (e.g., frequent coups)
– Creates uncertainty over whether property
rights will be protected in the future

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 Property Rights and Political Stability
• When people fear their capital may be stolen
by criminals/confiscated by a corrupt
government
– Less investment, including from abroad, and the
economy functions less efficiently
– Result: lower living standards
• Economic stability, efficiency, and healthy
growth
– Require law enforcement, effective courts, a
stable constitution, honest government officials
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 Free Trade
Trade can make everyone better off
• Inward-oriented policies
– i.e. tariffs, limits on investment from abroad
– Aim to raise living standards by avoiding
interaction with other countries
• Outward-oriented policies
– i.e. elimination of restrictions on trade or
foreign investment
– Promote integration with the world economy
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 Free Trade
• Trade has similar effects as discovering new
technologies
– Improves productivity and living standards
• Countries with inward-oriented policies
– Have generally failed to create growth.
• e.g., Argentina during the 20th century.
• Countries with outward-oriented policies
– Have often succeeded
• e.g., South Korea, Singapore, Taiwan after
1960
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 Research and Development
• Technological progress
– Main reason why living standards rise over the
long run
• Knowledge is a public good
– Ideas can be shared freely, increasing the
productivity of many
• Policies to promote technological progress:
– Patent laws; Tax incentives or direct support for
private sector R&D
– Grants for basic research at universities
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 Population Growth
• Large population
– More workers to produce goods and
services: larger total output of goods and
services
– More consumers
• Population growth may affect living
standards in 3 different ways…

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 Population Growth
1. Stretching natural resources
– 200 years ago, Malthus argued that
population growth will:
• Strain society’s ability to provide for itself
• Mankind - doomed to forever live in poverty
– Since then, the world population has
increased sixfold and living standards
increased
• Malthus failed to account for technological
progress and productivity growth
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 Population Growth
2. Diluting the capital stock
– High population growth (higher L)
– Spread the capital stock more thinly (lower K/L)
– Lower productivity and living standards
• To combat this, many developing countries
use policy to control population growth
– Government regulation (China’s one child law)
– Increased awareness of birth control
– Equal opportunities for women (Promote female
literacy to raise opportunity cost of having babies)
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 Population Growth
3. Promoting technological progress
– World population growth
• Engine for technological progress and
economic prosperity
• More people = More scientists, more inventors,
more engineers = More frequent discoveries
• Michael Kremer, human history:
– Growth rates increased as the world’s population
increased
– More populated regions grew faster than less
populated ones
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 Active Learning 2 Review productivity concepts

• List the determinants of productivity.

• List three policies that attempt to raise living
standards by increasing one of the
determinants of productivity.

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 Conclusion
• In the long run
– Living standards are determined by productivity
• Policies that affect the determinants of
productivity
– Will therefore affect the next generation’s living
standards
• One of these determinants: saving &
investment
– Next chapter: how saving and investment are
determined, and how policies can affect them
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 Summary
• There are great differences across countries in
living standards and growth rates.
• Productivity (output per unit of labor) is the main
determinant of living standards in the long run.
• Productivity depends on physical and human
capital per worker, natural resources per worker,
and technological knowledge.
• Growth in these factors—especially
technological progress—causes growth in living
standards over the long run.
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 Summary
• Policies can affect the following, each of which
has important effects on growth:
• Saving and investment; International trade
• Education, health & nutrition
• Property rights and political stability
• Research and development
• Population growth
• Because of diminishing returns to capital,
growth from investment eventually slows down,
and poor countries may “catch up” to rich ones.
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management system for classroom use.
 N. GREGORY MANKIW
PRINCIPLES OF

ECONOMICS
Eight Edition

CHAPTER Saving, Investment, and

18 the Financial System
Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
52
management system for classroom use.
 Look for the answers to these questions:
• What are the main types of financial
institutions in the U.S. economy, and what is
their function?
• What are the three kinds of saving?
• What’s the difference between saving and
investment?
• How does the financial system coordinate
saving and investment?
• How do government policies affect saving,
investment, and the interest rate?
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 Financial Institutions
• Financial system
– Group of institutions in the economy that
help match the saving of one person with
the investment of another
• Financial institutions
– Institutions through which savers can
directly provide funds to borrowers
– Financial markets
– Financial intermediaries
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 Financial Markets
• Financial markets
– Savers can directly provide funds to
borrowers
– The bond market:
• A bond is a certificate of indebtedness
– The stock market:
• A stock is a claim to partial ownership in a
firm

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 Financial Intermediaries
• Financial intermediaries
– Institutions through which savers can
indirectly provide funds to borrowers
– Banks
– Mutual funds: institutions that sell shares
to the public and use the proceeds to buy
portfolios of stocks and bonds

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 The Financial Crisis of 2008–2009
A financial crisis led to a deep recession in the U.S. and
around the world. A few unemployment rates:
12
USA
11 France
10 U.K.
Canada
9 Sweden
8
7
6
5
4
3
01-2007
04-2007
07-2007
10-2007
01-2008
04-2008
07-2008
10-2008
01-2009
04-2009
07-2009
10-2009
01-2010
04-2010
07-2010
10-2010
01-2011
04-2011
07-2011
10-2011
01-2012
04-2012
07-2012
10-2012
01-2013
04-2013
07-2013
10-2013
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 FYI: Elements of Financial Crises

• Large decline in some asset prices

– 2008–2009: Housing prices fell 30%.
• Insolvencies at financial institutions
– 2008–2009: Banks and other institutions failed
when many homeowners stopped paying their
mortgages.
• Decline in confidence in financial institutions
– 2008–2009: Customers with uninsured deposits
began pulling their funds out of financial
institutions
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 58
management system for classroom use.
 FYI: Elements of Financial Crises
• Credit crunch
– 2008–2009: Borrowers unable to get loans
because troubled lenders not confident in
borrowers’ credit-worthiness.
• Economic downturn
– 2008–2009: Failing financial institutions and a
fall in investment caused GDP to fall and
unemployment to rise.
• Vicious circle
– 2008–2009: The downturn reduced profits and
asset values, which worsened the crisis.
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management system for classroom use.
 Accounting Identities
• Gross domestic product (GDP, Y)
– Total income = Total expenditure
Y = C + I + G + NX
• Y = gross domestic product, GDP
• C = consumption
• I = investment
• G = government purchases
• NX = net exports

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management system for classroom use.
 Accounting Identities
• Assume closed economy: NX = 0
• Y = C + I + G, so I = Y – C - G
• National saving (saving), S
• Total income in the economy that remains
after paying for consumption and
government purchases
• By definition: S = Y – C – G
• It follows: Saving (S) = Investment (I)
for a closed economy
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management system for classroom use.
 Accounting Identities
– For T = taxes minus transfer payments
S = Y – C – G can be rewritten as:
S = (Y – T – C) + (T – G)
• Private saving, Y – T – C
– Income that households have left after
paying for taxes and consumption
• Public saving, T – G
– Tax revenue that the government has left
after paying for its spending
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management system for classroom use.
 Accounting Identities
• Budget surplus: T – G > 0
– Excess of tax revenue over government
spending = public saving (T-G)
• Budget deficit: T – G < 0
– Shortfall of tax revenue from government
spending = – (public saving) = G – T

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 63
management system for classroom use.
 Active Learning 1 A. Calculations
Suppose GDP equals $10 trillion, consumption
equals $6.5 trillion, the government spends $2
trillion and has a budget deficit of $300 billion.
• Find public saving, net taxes, private saving,
national saving, and investment.

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management system for classroom use.
 Active Learning 1 B. How a tax cut affects saving
Use the numbers from the preceding exercise,
but suppose now that the government cuts
taxes by $200 billion.
In each of the following two scenarios, determine
what happens to public saving, private saving,
national saving, and investment.
1. Consumers save the full proceeds of the
tax cut.
2. Consumers save 1/4 of the tax cut and spend
the other 3/4.

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 66
management system for classroom use.
 Active Learning 1 C. Discussion questions
The two scenarios from this exercise were:
1. Consumers save the full proceeds of the
tax cut.
2. Consumers save 1/4 of the tax cut and spend
the other 3/4.
• Which of these two scenarios do you think is
more realistic?
• Why is this question important?

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 68
management system for classroom use.
 The Meaning of Saving and Investment
• Private saving
– Income remaining after households pay
their taxes and pay for consumption.
– Examples of what households do with
saving:
• Buy corporate bonds or equities
• Purchase a certificate of deposit at the bank
• Buy shares of a mutual fund
• Let accumulate in saving or checking
accounts
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 69
management system for classroom use.
 The Meaning of Saving and Investment
• Investment
– Is the purchase of new capital
– Examples of investment:
• General Motors spends $250 million to build
a new factory in Flint, Michigan.
• You buy $5000 worth of computer equipment
for your business.
• Your parents spend $300,000 to have a new
house built.
Investment is NOT the purchase of stocks and bonds!
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 The Market for Loanable Funds
• Loanable funds market
– A supply–demand model of the financial
system
– Helps us understand:
• How the financial system coordinates
saving & investment.
• How government policies and other factors
affect saving, investment, the interest rate.

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 The Market for Loanable Funds
• Assume: only one financial market
– All savers deposit their saving in this
market.
– All borrowers take out loans from this
market.
– There is one interest rate, which is both
the return to saving and the cost of
borrowing.

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 72
management system for classroom use.
 The Market for Loanable Funds
• The supply of loanable funds comes from
saving:
– Households with extra income can loan it
out and earn interest.
– Public saving
• If positive, adds to national saving and the
supply of loanable funds.
• If negative, it reduces national saving and the
supply of loanable funds.

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 73
management system for classroom use.
 The Slope of the Supply Curve

An increase in the
Interest
interest rate makes
Rate Supply saving more
attractive, which
6% increases the
quantity of loanable
funds supplied.
3%

60 80 Loanable Funds
($billions)
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management system for classroom use.
 The Market for Loanable Funds
• The demand for loanable funds comes
from investment:
– Firms borrow the funds they need to pay
for new equipment, factories, etc.
– Households borrow the funds they need to
purchase new houses.

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 75
management system for classroom use.
 The Slope of the Demand Curve

A fall in the interest

Interest
rate reduces the cost
Rate of borrowing, which
increases the quantity
7%
of loanable funds
demanded.
4%

Demand

50 80 Loanable Funds
($billions)
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management system for classroom use.
 Equilibrium
The interest rate adjusts
to equate supply and
Interest Supply
demand.
Rate
The equilibrium quantity
of loanable funds equals
5% equilibrium investment
and equilibrium saving.

Demand

60 Loanable Funds
($billions)
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 Policy 1: Saving Incentives
Tax incentives for
saving increase the
Interest supply of loanable
Rate S1 S2 funds
…which reduces the
equilibrium interest
5% rate
4% and increases the
equilibrium quantity of
D1 loanable funds

60 70 Loanable Funds
($billions)
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 Policy 2: Investment Incentives
An investment tax
credit increases the
Interest demand for loanable
Rate S1 funds
…which raises the
6%
equilibrium interest
5% rate
and increases the
D2 equilibrium quantity
D1 of loanable funds

60 70 Loanable Funds
($billions)
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management system for classroom use.
 Active Learning 2 Budget deficits
Use the loanable funds model to analyze
the effects of a government budget deficit:
• Draw the diagram showing the initial equilibrium.
• Determine which curve shifts when the
government runs a budget deficit.
• Draw the new curve on your diagram.
• What happens to the equilibrium values of the
interest rate and investment?

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 Budget Deficits, Crowding Out,
and Long-Run Growth
• Our analysis:
– Increase in budget deficit causes fall in investment
– The government borrows to finance its deficit,
leaving less funds available for investment:
crowding out
• Investment is important for long-run economic
growth
• Hence, budget deficits reduce the economy’s
growth rate and future standard of living.

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 The U.S. Government Debt
• The government finances deficits by
borrowing (selling government bonds).
– Persistent deficits lead to a rising government
debt.
• The ratio of government debt to GDP
– Useful measure of the government’s
indebtedness relative to its ability to raise tax
revenue.
– Historically, the debt-GDP ratio usually rises
during wartime and falls during peacetime—until
the early 1980s.
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 U.S. Government Debt as a Percentage of GDP
1790–2012

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 Conclusion
Markets are usually a good way to organize
economic activity
• Financial markets: governed by the forces of
supply and demand
– Help allocate the economy’s scarce resources
to their most efficient uses.
– Link the present to the future
• Savers: convert current income into future
purchasing power
• Borrowers: acquire capital to produce goods
and services in the future
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management system for classroom use.
 Summary
• The U.S. financial system is made up of many
types of financial institutions, like the stock and
bond markets, banks, and mutual funds.
• National saving equals private saving plus
public saving.
• In a closed economy, national saving equals
investment. The financial system makes this
happen.

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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 87
management system for classroom use.
 Summary
• The supply of loanable funds comes from
saving. The demand for funds comes from
investment. The interest rate adjusts to balance
supply and demand in the loanable funds
market.
• A government budget deficit is negative public
saving, so it reduces national saving, the supply
of funds available to finance investment.
• When a budget deficit crowds out investment,
it reduces the growth of productivity and GDP.
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