Factors of production

Factors that Lead to Economic Growth

Unit 3 Notes

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

economic growth within a country:economic growth within a 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 factors The presence or absence of these 4 factors determine the country’s Gross Domestic Product determine the country’s Gross Domestic Product for the yearfor the year

What is Human Capital?

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

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

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

How does Human Capital How does Human Capital Influence Economic Growth?Influence Economic Growth?

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

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

What are Capital Goods?What are Capital Goods? All of the goods that are produced in the All of the goods that are produced in the

country and then used to make other country and then used to make other goods & servicesgoods & services Examples: tools, equipment, factories, Examples: tools, equipment, factories,

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

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

How do Capital Goods influence How do Capital Goods influence Economic Growth?Economic Growth?

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

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

What are Natural Resources?What are Natural Resources?

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

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

air, minerals, oil, etc.air, minerals, oil, etc.

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

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

What is Entrepreneurship?What is Entrepreneurship? Entrepreneurs have 2 characteristics that make them Entrepreneurs have 2 characteristics that make them

different from the rest of the labor force: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 innovative 2. risk taker (use limited resources in an innovative

way in hopes that people will buy the product)way in hopes that people will buy 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 done so Changing the way something was previously done so

that it works betterthat it works better

How does Entrepreneurship How does Entrepreneurship Influence Economic Growth?Influence Economic Growth?

Entrepreneurship creates jobs and Entrepreneurship creates jobs and lessens unemploymentlessens unemployment

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

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

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 yearDomestic Product (GDP) in one year

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

Gross Domestic ProductGross Domestic Product

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

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

Gross Domestic Product

Measuring the GDP each year can:Measuring the GDP each year can: Compare one country’s economy to anotherCompare one country’s economy to another Check a country’s economic progress over Check a country’s economic progress over

timetime Show if the economy is growing or not Show if the economy is growing or not

Standard 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.

Summary To en courage economi c growth an d raise th e To en courage economi c growth an d raise th e

li vi ng stan dards of i ts citizens, th ere must be li vi ng stan dards of i ts citizens, th ere must be investment i n h uman capital and capital investment i n h uman capital and capital goods. goods.

Economic growth i s measu red by in creases in Economic growth i s measu red by in creases in real capital per GDP over ti me.real capital per GDP over ti me.

How larg e a nati on’s GD P can be is determi ned How larg e a nati on’s GD P can be is determi ned by th e avail abili ty and quali ty of i ts natu ral , by th e avail abili ty and quali ty of i ts natu ral , human , and capital resources.human , and capital resources.

To in crease econ omi c g rowth and per capita To in crease econ omi c g rowth and per capita GD P over t ime requ ires i nvestmen ts i n both GD P over t ime requ ires i nvestmen ts i n both phy sical capital (factori es, mach ines) an d phy sical capital (factori es, mach ines) an d human capi tal (edu cati on, traini ng, skill s of human capi tal (edu cati on, traini ng, skill s of labor force) .labor force) .