Econ 103 Ch 17 The outward shift of the PPF indicates an expansion of society s production possibilities and is referred to as economic growth Beginning in England 18C technical change and capital accumulation increased productivity in agriculture and textiles industries New and more efficient methods of farming were developed and new inventions and new machinery in spinning and weaving greatly increased productivity Transformation away from an agrarian society that began in mid 18c England is known as the industrial revolution Technological change innovation and capital accumulation production are the primary forces behind the productivity advances that propel economic growth Since the increase in the labor force was not accompanied by an expansion of the capital stock the resulting increase in output fails to keep pace with the growing workforce yielding declining productivity and a lower standard of living An innovation is an invention that has been put into practice Innovation is the process that transfers ideas through business activity into saleable goods processes and services An invention is an advance in knowledge A theoretical development with the potential for economic exploitation Requirements imposed by government upon firms to reduce pollutants may divert resources away from the production of measured output thereby reducing measured productivity In 1979 President Carter attributed America s many troubles inflation recession energy dependency etc to a crisis of confidence that strikes at the very heart and soul and spirit of our national will Those holding the anti growth position argue that the market produces an upward bias in favor of growth because many of the things that negatively affect the quality of life are not traded in the market Economic growth brings both costs and benefits A society must choose through some political process the course it wishes to follow The arguments for and against economic growth make it clear that society must make some hard choices since there is no right answer According to those who argue against economic growth the measurement of output overstates its value to society Relationship between Per Capita GDP and Urban Air Pollution is an inverted U As countries grow wealthier smoke increases and then declines Economic growth refers to an increase in the total output of an economy Modern economic growth is the period of rapid and sustained increase in real output per capita that began in the Western World with the Industrial Revolution The production possibility frontier ppf shows all the combinations of output that can be produced if all the scarce resources were fully and efficiently employed Economic growth expands society s production possibilities shifting the ppf up and to the right An aggregate production function is the mathematical representation of the relationship between inputs and national output or gross domestic product Growth in labor force w o a corresponding increase in the capital stock or technological change can lead to growth of output but decrease in productivity and standard of living Labor productivity is the output per worker hour Increase in capital stock is the difference btwn gross investment and depreciation Productivity of an input is the amount produced per unit of an input Factors that affect the productivity of an input include technological change other advances in knowledge and economies of scale Catch up The theory stating that growth rate of developing countries exceed that of the developed countries allowing them to catch up This idea that gaps in national incomes tend to close over time is called convergence theory The Advantages of backwardness was coined describe the phenomenon of less developed countries leaping ahead by borrowing technology from more developed countries Limitations to growth failure to enforce law wars revolutions poor public education health low saving investments brain drain Policies for faster growth stimulate saving stimulate research development improve the quality of education improve health and encourage international trade