ECON 2 PRINCIPLES OF ECONOMICS 2

ECONOMIC GROWTH
Lesson 7

Growth is a generally held economic goal. The Gross Domestic Product (GDP) in the
Economic growth is defined as either an increase in real Philippines expanded 7.10% in the third quarter of 2012
GDP or real GDP per capita over a period. It is calculated over the same quarter of the previous year. GDP Annual
as a percentage rate of growth per quarter or per year. Growth Rate in Philippines is reported by the National
Statistical Coordination Board. Historically, from 2001 until
Growth of real GDP – useful for measuring expansion of 2012, Philippines GDP Annual Growth Rate averaged
military potential and political pre-eminence 4.8% reaching an all-time high of 8.9% in June of 2010
and a record low of 0.5% in September of 2009.
Growth of real GDP per capita – useful for comparing
standards of living Modern Economic Growth

Philippines GDP per capita Modern economic growth is characterized by

sustained and on-going increases in living standards that
can cause dramatic increases in the standard of living
within less than a single human lifetime. It has greatly
affected cultural, social, and political arrangements.

Cultural effects: increases in wealth and living standards

have allowed ordinary people to have significant time for
leisure activities and the arts

Social effects: modern economic growth have abolished

feudalism, instituted universal public education, and
eliminated ancient social norms and legal restrictions
Arithmetic of Growth against women and minorities doing certain jobs

The mathematical approximation called the rule of Political effects: democracy, a form of government that
70 provides a quantitative grasp of the effect of economic was extremely rare before the start of the Industrial
growth. Revolution

Approximate number of 70 Institutional Structures that Promote Growth

years required to = Annual percentage rate of
double real GDP growth  Strong property rights
 Patents and copyrights
Economists pay so much attention to small changes  Efficient financial institutions
in the rate of economic growth because a 1% increase  Literacy and widespread education
would amount to billions or trillions of US dollars.  Free trade
 A competitive market system
Philippine Annual Growth Rate
Determinants of Growth

Increases in the quantity and quality of

natural resources
Supply Increases in the quantity and quality of
factors human resources
Increases in the supply of capital goods
Improvements in the technology
To achieve the higher production potential
created by the supply factors, households,
Demand
businesses and government must purchase
factor
the economy’s expanding output of goods
and services

INSTRUCTOR: NIÑA MAE BIANCA J. MARTIN LESSON 7

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ECON 2 PRINCIPLES OF ECONOMICS 2

To reach its full production potential, an

Efficiency
economy must achieve economic efficiency
factor
as well as full employment
Production Possibilities Analysis
Five factors that, together, appear to explain changes in
Growth and Production Possibilities productivity growth rates:

The production possibilities curve or production 1. Technological Advance

possibilities frontier indicates the maximum combination of 2. Quantity of capital
products an economy can produce with its fixed quantity 3. Education and training
and quality of resources and its technological knowledge. 4. Economies of scale
An improvement in any supply factors (land, labor 5. Resource allocation
and capital) will push the frontier outward, from curve AB
to CD. The demand factor reminds us that an increase in Implications for Economic Growth
spending is needed to move the economy from a point like
point a to any point on curve CD. And the efficiency factor 1. Stronger productivity growth and heightened global
reminds us that we need least-cost production and an competition allow the economy to achieve a higher
optimal allocation on CD for the resources to make their rate of economic growth, seen as an outward shift of
maximum output. the production possibility curve.
2. Because of demand factors, real output periodically
deviates below and above the growth trend.

Stimulating Sustainable Economic Growth

Capital

Building economic foundations

Goods

 Strengthening public financial management at

national, regional and local levels
 Improving legal/regulatory frameworks and systems
A
C

to stabilize economies
 Supporting governments and private sector
companies to expand their business and integrate
into regional and global markets
Consumer Goods

Labor and Productivity

a

 Building capacities to sustainably manage natural

resources
Society can increase its real output and income in 2 ways:
B D

Growing businesses
1. By increasing its input of resources  Strengthening support for micro, small and medium-
2. By raising the productivity of those inputs sized private sector businesses, particularly those
owned by women
The supply determinants of real output:  Increasing productivity
 Increasing availability of financial services (including
 Size of employed microfinance)
labor force Labor inputs
 Average hours of (hours of work) Investing in people
work  Increasing access to demand-driven skills training
x = Real GDP (including literacy and numeracy)
 Technological  Increasing workplace learning opportunities
advance (particularly in agriculture)
 Quantity of capital  Supporting learning initiatives which lead to
Labor productivity
 Education and business growth, market expansion and increased
(average output
training productivity
per hour)
 Allocative
efficiency
 Other

INSTRUCTOR: NIÑA MAE BIANCA J. MARTIN LESSON 7

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