Factors that Lead to Economic Growth

Factors that Lead to Economic Growth

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

influence economic growth within a influence economic growth within a country:country:1.1. investment in human capitalinvestment in human capital

2.2. investment in capital goodsinvestment in capital goods

3.3. natural resources availablilitynatural resources availablility

4.4. entrepreneurshipentrepreneurship

The presence or absence of these four The presence or absence of these four factors determine the country’s gross factors determine the country’s gross domestic product for the yeardomestic product for the year

There are four factors of production that There are four factors of production that influence economic growth within a influence economic growth within a country:country:1.1. investment in human capitalinvestment in human capital

2.2. investment in capital goodsinvestment in capital goods

3.3. natural resources availablilitynatural resources availablility

4.4. entrepreneurshipentrepreneurship

The presence or absence of these four The presence or absence of these four factors determine the country’s gross factors determine the country’s gross domestic product for the yeardomestic product 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, and Examples: computer, reading, writing, and

math skills, talents in music, sports, acting, math skills, talents in music, sports, acting, ability to follow directions, ability to serve ability to follow directions, ability to serve as group leader, & cooperate with group as group leader, & cooperate with group membersmembers

A country’s literacy rate (the percent of A country’s literacy rate (the percent of the population over 15 that can read the population over 15 that can read and write) impacts human capital. and write) impacts 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, and Examples: computer, reading, writing, and

math skills, talents in music, sports, acting, math skills, talents in music, sports, acting, ability to follow directions, ability to serve ability to follow directions, ability to serve as group leader, & cooperate with group as group leader, & cooperate with group membersmembers

A country’s literacy rate (the percent of A country’s literacy rate (the percent of the population over 15 that can read the population over 15 that can read and write) impacts human capital. and write) impacts human capital.

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 & that produces more goods & services.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 goods.producing 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 & that produces more goods & services.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 goods.producing 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 produce.they 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 produce.they 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 resources How do natural resources influence economic influence economic

growth?growth?

How do natural resources How do natural resources influence economic influence economic

growth?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 resources.to 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 resources.to import natural resources.

What is What is entrepreneurship?entrepreneurship?

What is What is entrepreneurship?entrepreneurship?

Entrepreneurs have two characteristics that Entrepreneurs have two characteristics that make them different from the rest of the labor make them different from the rest of the labor force: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 two characteristics that Entrepreneurs have two characteristics that make them different from the rest of the labor make them different from the rest of the labor force: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 unemployment.and lessens unemployment. It encourages people to take It encourages people to take

risks, and in doing so, they’ve risks, and in doing so, they’ve created better healthcare, created better healthcare, education, & welfare programs.education, & welfare 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 unemployment.and lessens unemployment.

It encourages people to take It encourages people to take risks, and in doing so, they’ve risks, and in doing so, they’ve created better healthcare, created better healthcare, education, & welfare programs.education, & welfare 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 year.year.

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 year.year.

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 compare one country’s

economy to another.economy to another. check a country’s economic check a country’s economic

progress over time.progress over time. show if the economy is growing show if the economy is growing

or not. or not.

Measuring the GDP each year Measuring the GDP each year can:can: compare one country’s compare one country’s

economy to another.economy to another. check a country’s economic check a country’s economic

progress over time.progress over time. show if the economy is growing show if the economy is growing

or not. or 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 and raise the To encourage economic growth and raise the living standards of its citizens, there must be living standards of its citizens, there must be investment in human capital and capital investment in human capital and capital goods. goods.

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

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

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

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

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

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

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