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Welcome to The Power of Macroeconomics.
The purpose of this lesson is to examine how and why nations grow and prosper.
>> When you read the daily business news it
is dominated by reports of stock price fluctuations, the
monthly unemployment and inflation rates, trade statistics and speculation
about whether the Federal Reserve will raise interest rates.
But as important as these events are
for job hunters or investors, they are only
small ripples on the longer wave of economic growth.
Year in and year out, advanced economies,
like the United States, accumulate larger quantities
of capital equipment, push out the frontiers
of technological knowledge and become steadily more productive.
Over the long run of decades and generations, living standards,
as measured by output per capita, or consumption per household, are
primarily determined by the level of productivity and growth of a country.
In this lecture, we are going to
examine the complicated process of economic growth.
In doing so, we will not only come to better
understand the critical role that productivity plays in this process.
We will also gain some valuable insights into both how and
why government policies play a critical role in the growth process.
So let's start our journal now with a simple definition.
Economic growth represents the expansion of
a country's potential GDP or national output.
And a closely related concept is the growth rate of output per person.
This determines the rate at which the country's standard of living is rising.
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So what is the recipe for such economic growth?
To begin with, successful countries need not follow the same path.
Britain, for example, became the world economic leader in the 1800s by
pioneering the industrial revolution, inventing steam
engines and railroads, and emphasizing free trade.
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Japan by contrast came to the economic growth race later.
It made its mark by first imitating
foreign technologies, and protecting domestic industries from imports.
And then by developing tremendous
expertise in manufacturing and electronics.
However, even though their specific paths may differ,
all rapidly growing countries share certain common traits.
The same fundamental process of economic growth and development that helped shape
Britain and Japan is at work today in developing countries like China and India.
Indeed, economists who have studied growth have
found that the engine of economic progress must
ride on the same four supply side wheels, no matter how rich or poor the country.
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These four wheels, or supply factors of growth, are, human resources,
including labor supply. Education, discipline and motivation.
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Capital formation including machines, factories and roads.
And technology from science and
engineering to management and entrepreneurship.
Let's look
at each of these four supply side factors individually now.
Dr. Peter NavarroProfessor
