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Chapter 17 - Economic Growth
Chapter 17 - Economic Growth
Economic Growth
Is Economic Growth and Environmental Quality Connected?
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Learning Objectives
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How Do We Measure Standard of
Living?
RGDP(Future) = RGDP(Present)(1 + g) n
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How Long Will it Take
for Income to Double?
According to the rule of 70, if some variable grows at a
rate of x percent per year, then that variable doubles in
approximately 70/x years. If the UAE economy grows at 3
percent per year, then it takes about 70/3 = 23 years for
income in the UAE to double. If the UAE economy grows
at 1 percent per year, it takes 70/1 = 70 years for income in
the UAE to double, huge difference!
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Real GDP per Capita
In other words,
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Understanding Growth
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The Determinants of Average Labor
Productivity
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Economic Growth
and Public Policy
So far, we have determined that a society’s
standard of living depends on its ability to produce
goods and services and that its productivity
depends on physical capital, human capital,
natural resources, entrepreneurship, technological
knowledge, and political environment.
What can government policy do to raise
productivity and living standards?
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The Role of Property Rights and
Political Stability
Policy makers can foster economic growth by protecting
property rights and promoting political stability.
Property rights are key for the promotion of savings,
investments, education, research and development, and
trade.
Property rights refer to the ability people have to exercise
authority over the resources they own. These resources
could be physical or intellectual.
When revolution and coups are common (political
instability), there is doubt about whether property rights
will be respected. Consequently, rising productivity and
living standards become difficult.
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Promote Saving and Investment
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Promote Investment from Abroad
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Promote Education
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Promote Research and
Development
The primary reason that living standards are
higher today than they were a century ago is that
technological knowledge has advanced.
Governments must encourage research and
development of new ideas.
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Promote Free Trade
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The Environmental Kuznets Curve
Air pollution
quality improves
Beyond a certain level of income,
citizens value a cleaner
environment and they are willing Real GDP per capita
and able to pay for it
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Important Properties Related to Economic Growth:
Diminishing Returns and the Catch-up Effect
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