Slide 1Chapter OutlineYou Are HereGrowth in Already Developed CountriesAggregate DemandIncreasing Aggregate DemandAggregate SupplyIncreases in Aggregate SupplyProductivity and GDP Growth 1990-2004Comparing Developed Countries and Developing CountriesFostering (and Inhibiting) DevelopmentThe Challenges Facing Developing CountriesSuccess StoriesWhat WorksChapter 18Economic Growth and DevelopmentCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin18-2Chapter Outline•Growth in Already Developed Countries•Comparing Developed Countries and Developing Countries•Fostering (and Inhibiting) Development18-3You Are Here18-4Growth in Already Developed Countries•Sources of Growth–Increases in Aggregate Demand–Increases in Aggregate Supply18-5Aggregate Demand•Variables to Shift Aggregate Demand–Low interest rates–Low taxes–High government spending•Government can not make this occur continuously. •Eventually, the Classical Range of the Aggregate Supply curve will be reached.18-6Increasing Aggregate DemandAD’ASADRGDPPIPI*RGDP*PI’RGDP’18-7Aggregate Supply•Variables that can shift Aggregate Supply–Wage and Input Costs–Productivity–Technology•Wage and Input costs can’t continuously decrease•Productivity and Technology can continually increase18-8Increases in Aggregate SupplyASADRGDPPIPI*RGDP*AS’PI’RGDP’18-9Productivity and GDP Growth1990-200418-10Comparing Developed Countries and Developing Countries•Rich Countries–Are getting richer (faster GDP growth)–Have more evenly divided incomes (lower GINI coefficients)–GDP is produced by services, then industry (agriculture insignificant)–Lower Inflation•Poor Countries–Have lower GDP growth rates–Have highly uneven incomes–Agriculture is an important part of GDP–Have higher levels of inflation18-11Fostering (and Inhibiting) Development•Solow growth model predicted convergence of income.•Evidence shows this is not occurring.•Political and institutional problems inhibiting growth18-12The Challenges Facing Developing Countries•Low Rates of Basic Literacy•Lack of Infrastructure•Political Instability•Corruption•Lack of Independent Central Banking•Inability to Repatriate Profits•A Need to Focus on the Basics18-13Success Stories•Japan–Solid financial institutions–Education–Few Resources•China–Resources–Cheap labor•South Korea–Liberalized political institutions–Solid financial insituttions•Saudi Arabia & Kuwait–Oil18-14What Works•Basic Building Blocks–education, –a low or manageable level of government corruption, –a level of political and financial stability•Creates confidence among foreign
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